Everyone seems to be looking for the next big investment idea. Whether it’s cryptocurrency or Gold IRAs, people are diversifying, and for good reason. In volatile markets, with turbulent world affairs and economic uncertainty, it’s a good idea to let your money do work for you instead of for a mutual fund’s big investors.
Recent data indicates that fine art in private holdings accounts for almost $2 Trillion in invested funds. But not many of us know someone with that art hanging in their living room. That’s because most of that art gets loaned to museums, or sits in a professional storage facility, waiting to be sold again.Finally there’s a company, Masterworks, who has found a way to get all of us involved in investing. By purchasing art at low prices, and essentially selling shares of it to all of us, Masterworks has developed a way to invest in high-end art, without needing to have millions of dollars to spend at an auction.
Who is Masterworks?
Masterworks was founded to get everyday people into the world of art investing. Two of their advisors have founded other companies to get people invested in stocks and real estate.
With over twenty years of crowd-source investing experience behind them, the people of Masterworks are dedicated to making the dream of investing in a Picasso a reality—for everyone.
Based out of New York City, Masterworks has a dedicated team of customer service personnel. When we sat down to write this review, we signed up for an account with Masterworks, and in less than ten minutes we were able to schedule a live call with a representative.
How Does it Work?
When you first go to the Masterworks website, you can read all about their business model, or you can sign up right away. Signing up doesn’t require any commitment, no money, and you don’t have to agree to anything. Just provide your email, phone number, and create a password.
After you sign up, you’ll be asked to schedule an interview. This interview works both ways. Masterworks wants to make sure that you’re the right kind of person to invest in their art, and that they are the right company for you.
Trust works both ways, and we give them an A+ for the interview process. It shows that they aren’t interested in taking money from people just to earn a buck for themselves. If their investors aren’t happy, they don’t have a business model.
After your interview, you’re asked to link a US Bank Account. It’s a safe procedure, but if you’re worried, simply call your bank or financial institution, and let them know what’s going on. That way you can always terminate the link at any time.
After you’re signed up and have a bank account linked, it’s time to invest.
How to Invest
Once you are a member, you can purchase shares of paintings that Masterworks has purchased. You can purchase shares in up to four paintings per month.
Masterworks analyzes the Art Market using highly tuned programs and modeling, to determine which artists are on the rise, and which of their paintings are going to be the hottest. Then, Masterworks procures the paintings, and stores them in secure and safe facilities for between 3 and 7 years, after which time they sell them at auction.
Your return on investment is only limited by how much you invest. As of the time of writing this article, a member can invest in a Picasso valued at over $17 Million for as little as $20 a share.
Of course life doesn’t always go according to our schedules. Sometimes we need our investment money back as cash, soon. In traditional stocks, you have the ability to sell your stocks at any time. But investing in shares of an asset means you can’t decide for everyone else that it’s time to sell that Picasso.
Masterworks realizes, however, that people have unexpected expenses, and they wanted to make investing with them more flexible. So they put a Secondary Market into place, where you can sell your shares of Masterworks art pieces to other Masterworks members.
This has two benefits. The first is already clear. If you’re invested in a piece of art that won’t sell at auction for another two years, but you need cash now, you can sell your shares to other members.
The other benefit is that if you see in the Masterworks Secondary Market that shares for a particular painting you wanted to invest in are up for sale, you can come in at a later time and purchase shares from other members. This can be a great way to get in on a piece you missed out on, or that was only available before you became a member.
How to Realize Return on Investment
Perhaps the only thing that matters to some investors is how to realize a return on their investment. With Masterworks, the process is simple.
By employing experts in the art world and top-end analysis, Masterworks determines the peak selling point of a painting in their holdings. When a piece is at its peak sale price, Masterworks sells, and you receive a payment based on the level of your investment, minus fees.
It’s fair to ask, “how do they make money?” And it’s also fair to assume that Masterworks makes their money on fees. But really, Masterworks only charges fees sufficient to store and care for the art, and to handle administrative costs, like paperwork and keeping the lights on.
Masterworks isn’t run by or for old-money billionaires. According to their business organization structure, filed with every circular on every piece of art they offer shares on, Masterworks itself buys some portion of shares in each painting, as well as offering some shares to members.
This means two things; one, you never have to worry that Masterworks is trying to make money off of your fees; and two, it means that Masterworks will only sell paintings when the price is absolutely optimal, because they have a stake in it, too.
Why You Should, and Shouldn’t, Invest with Masterworks
Reasons to Choose Masterworks
One of the biggest reasons to invest with Masterworks is that it gives you a chance to diversify your holdings. Every investment advisor recommends putting a little bit of capital into several different types of accounts—a little in real estate, a little in stocks, a little in bonds, for instance.
With Masterworks, you have the opportunity to invest in a market previously hidden from everyday people—truly fine art. From established masters like Gerhard Richter to modern phenoms like Banksy, Masterworks keeps a rolling ledger of the hottest pieces in the blue-chip art world. And you can invest in all of them.
Diversifying gives you a potential hedge against inflation, market volatility, and bond uncertainty. It also means you can take advantage of trends in the art world that offer returns far greater than anything you can see from traditional investing. According to Masterworks, they have seen returns almost 5% higher in Fine Art than in any other type of account.
Reasons to Stay Away
Let’s be honest, there’s a reason investing in fine art has been limited to the ultra-wealthy in past years. It requires a lot of money, and returns aren’t guaranteed. The biggest reason to stay away from art investing is if you’re not able to take the risk. And that’s okay.
Not everyone can afford to split some of their hard-earned money away from traditional investments and go with fine art. Even with a trustworthy company like Masterworks, there is still risk.
Pros and Cons
We think Masterworks is a fantastic way to break into the world of fine art collecting and investing. It’s difficult to know how or when to purchase a piece of art, and sometimes it means taking a five figure risk on an unknown artist.
Masterworks gives you the opportunity to spend as little as $20 on a piece of art. And you get the benefit of being a part of the art world, watching headlines, and becoming a more informed investor now that you have a stake in it.
Investing with Masterworks is not for everyone. But it can be a hedge against inflation, and it can mean having more fun with your investments. We recommend scheduling a call with them, to find out if investing with Masterworks is right for you.
Yes. Not only have their leaders helped people invest in real estate and the stock market for over twenty years, but every painting comes with an SEC filed circular. In that circular, you can see a breakdown of fees, the business structure of Masterworks, and exactly how many shares are for sale.
Right now they ask that you link to a US Bank account. If you have foreign currency, we suggest speaking with an existing US Bank about converting your funds.
Not at this time. They're focused on building a great art portfolio, though a mobile app may be on the way.
You’d have to speak with your personal customer service representative. They will customize a package of investing for your goals and financial capabilities.
Because the Secondary Market is solely based on other members offering up shares, and other members being willing to purchase them, there’s no way to predict how quickly you can sell your shares on it.