Most people begin their investing careers with common assets such as stocks, bonds, and pooled investments. Nevertheless, you may finally feel ready to diversify your portfolio beyond traditional investments and into nontraditional assets.
For years, art has been a popular investment, but it hasn't always been easy to obtain for the average investor. However, as financial technology evolves, investing in art has never been easier if you know where to look. In this review, let us analyze and contrast two of the top art investment platforms.
An Introduction to Masterworks
Many astute investors are aware of crowdfunding businesses that allow them to invest in real estate projects without purchasing the entire property. What if you were able to accomplish the same thing with art?
Who are Masterworks?
Masterworks is a great platform for art investment. Masterworks allows you to invest in securitized blue-chip paintings instead of directly in art. You are not purchasing a whole work of art when you invest in Masterworks. Instead, you're investing in a part of art's ownership. Hence, you can develop a diversified art portfolio for a fraction of the cost of a single work of art.
You have two options after you've made your investment. You can either sell your artwork or keep it. You can also wait 3-10 years till Masterworks wants to sell the piece and distributes it. Thus, offering a pro-rata part of the revenue to each owner. Keep in mind that these investments' liquidity may be lower than you're used to, limiting your selling ability.
Masterworks is ideal for investors who want to add art to their portfolio but don't want to buy or manage pieces of the art. Low investment minimums, a user-friendly platform, and excellent historical returns are just a few advantages.
As per the Wall Street Journal, artwork returned 10.6% on average in 2018, compared to 4.38 % in the S&P 500. Masterworks aspires to exceed the S&P 500, but there are winners and losers in any investment class. The company has only been active for a few years, as it was founded in 2017. However, Masterworks claims that the assets are handled with exceptional caution and are fully insured in the event of damage or loss.
You can own pieces of all kinds of fine art with Masterworks whether classic or contemporary. They have the genius street art from the guerilla artist Banksy. The artworks of the outstanding French artist Jean-Michel Basquiat that died too young but whose name still holds a ghost of nostalgia in the echelons of the art world. They also have shares from classic masterpieces such as Claude Monet and Pablo Picasso to name just a few. Masterworks art is estimated to be securitized at $400M+.
You can now explore and own a piece of exclusive fine art, courtesy of Masterworks. They are one of the first platforms to promote this type of art investment, making it a pioneer in the segment.
Masterworks features
How do you become a Masterworks member?
Unlike several alternative investment platforms, Masterworks does not require you to be an accredited investor to get started. So, you may request an invitation and complete a phone interview to become a member.
One would assume that a company that uses Blockchain platforms to identify shareholders would be liberal enough to allow you to sign up entirely online. Instead, you have to make a genuine phone conversation with a human first. That's a stumbling block. But it shows that they are not only exclusive but also particular about security.
No minimum investment amounts are set by Masterworks. Minimum investment amounts vary based on the particular investment opportunities present at the moment of investment.
How does Masterworks perform their Work?
Masterworks buys artwork from a roster of artists approved by algorithms. It identifies outstanding artists with a proven track record of appreciation using data from over 1 million art auctions. Masterworks seeks artworks where the artist has a track record of generating a 9% to 15% annual return.
After acquiring it, Masterworks registers the art with the Securities and Exchange Commission (SEC) and distributes shares in $20 increments. No single investor can own more than 10% of a particular work's shares.
The artwork is held by Masterworks, which may display in their New York City members-only gallery. Although it has a second office in Boulder, Colorado, it does not have a gallery. The majority of the artworks will be sold by Masterworks in the next five to ten years. A 75% shareholder vote is required to approve a potential buyer's bid.
When the artwork is sold, the revenues are split among the investors. Masterworks charges a fee of 20% of the profits.
You can sell on the Masterworks secondary market if you wish to get out early. You can also buy shares in an artwork being sold on the secondary market, which you can see on their website.
Members and the general public can use the Masterworks website's free database and blog to investigate artists and investment opportunities.Risk and market return on Masterworks
Masterworks is a relatively new company, having just been around for a few years. It is tough to pinpoint an exact historical performance because of this. If you go around the Masterworks website, you can see a list of past winners and losers. Even works by well-known artists such as Claude Monet and Vincent Van Gogh lose value from time to time. However, profits usually outnumber losses.
Masterworks by living artists, such as anonymous guerrilla street artist Banksy, would make us more cautious. There is a slew of new issues to consider here. The artist's reputation could be tarnished through poor behavior, devaluing previous works quickly. Art can also be highly subjective, making it difficult to assign a value to certain pieces.
A diverse portfolio can help you manage risk, just like stocks, bonds, and other investments. While investing in artwork can be a delightful addition to your portfolio, it should not take up a significant portion.
Fees for Masterworks
Masterworks is not inexpensive; it charges an annual account fee and a percentage of any artwork sales proceeds. The cost is 1.5% per year. This price covers many expenses, including storage, security, and insurance.
If an artwork sells; Masterworks receives a 20% commission on the sale price. This is about comparable to the cost of investing in a hedge fund. That's a lot of money, but if the artwork values well, you could still make a decent profit.
Customer service at Masterworks
There are two ways to get answers to your Masterworks questions: Email/Telephone
The good news is that you will have the opportunity to speak with someone live rather than contacting the team via email or instant chat.
Pros and Cons of Masterworks
Since Masterworks is a company that sells blue-chip art shares. It has acquired $110 million in the first round of funding from New York-based venture capital firm Left Lane Capital and other investment firms such as Tru Arrow Partners and Galaxy Interactive as of October 2021. With this round of funding, the firm claims to be worth more than $1 billion, marking a significant milestone for the platform, which has seen its user base rapidly rise over the previous year.
Our verdict on Masterworks:
There are no minimum investment amounts set by Masterworks. While there are several areas where it may be better, it does provide an opportunity to diversify into other assets without having a seven-figure net worth.
Masterworks is not for the weak-hearted. It is best suited for those willing to risk to earn good profits. Even with a "blue-chip" artist, art consumers can be finicky, and there's no certainty you'll make money. Masterworks could be a fun but risky addition to your portfolio if you're searching for an alternative to the stock market and other standard assets. Masterworks could be an appealing income-producing asset for many investors because they can diversify their assets by purchasing artwork.
Art is a hedge also known for protection against inflation and stock market volatility. Fees and liquidity received a low ranking because fees are: Uncertain, Complex, or Extremely high.
As a fine art investing platform, Masterworks is also not liquid. Because even if you wanted to, you wouldn't be able to get your money back today. You'll have to wait for three to ten years to get your money back.
An introduction to Otis
Otis is an online investment platform that gives anyone access to alternative investments that were previously only available to the wealthy. The founder felt cultural goods had the potential to be a valuable addition to any diverse financial portfolio.
You can invest in a variety of alternative investments through Otis, including collectibles, art, non-fungible tokens (NFTs), sneakers, and more. Instead of buying the assets directly on Otis, you're buying securitized versions of the assets that have been divided into multiple shares. You may trade in real-time, just like stocks, and keep track of your investments from anywhere.
Who and what exactly is Otis?
Otis Wealth is a haven for trade enthusiasts and avid collectors of cultural assets. Instead of stocks, you'll be investing in treasures like "Shattered Backboard" Jordan 1s from August 25th, 1985, or a Dwayne Johnson Football Card 1994 or even a piece of new age art from Katherine Bradford. You earn a return on your investment when you acquire shares in a collection and it rises in value.
Otis Wealth was founded in 2018 by Michael Karnjanaprakorn, the visionary who also created the massively renowned eLearning portal Skillshare. The mission being to offer alternative assets, such as collectibles, for a young breed of shareholders with same love of art as the founder.
What is Otis' method of operation?
Otis' business model is founded on the concept of "fractional ownership," which illustrates why a couple of high-end Magic Johnson sneakers or a piece of fine art can be purchased for as little as $10. This is how things actually work.
- 1The Otis team selects a cultural item whose value they believe will appreciate over time. They acquire this asset through auctions or private sales.
- 2Otis then "secures" the asset with the Securities and Exchange Commission (SEC) and divides it into smaller shares. Sometime back, Otis bought the 'Yeezy Collection II' shoe for $13,500 and transformed it into a security. When the asset was first released, they divided it into 1,350 shares, each of which sold for $10.
- 3You can then buy these shares in the same way you would buy stock in a corporation. You would be a 10% owner of the 'Yeezy Collection II' shoe if you purchased 135 shares.
You can quickly track the value of your investments when you log on to Otis. If the worth of the 'Yeezy Collection II' sneakers doubles, so does the value of your investment.
Who is eligible to invest with Otis?
For the most part, all you need is a smartphone and $10 to get started with Otis. You don't have to be an accredited investor to participate.
You will, however, require to be:
Features
Fees, risks and market returns on Otis
Members can utilize the platform's iOS or Android app to buy shares in future collectible offerings, known as drops, or exchange shares from previous offerings on the Otis Wealth trading marketplace.
On their website, Otis Wealth sells shares in collectibles, although they are not the broker-dealer for these assets. Instead, Otis administers the investments and coordinates broker-dealer services with the Dalmore Group, LLC. Your money goes into the LLC created for each investment when you invest with Otis Wealth.
What services does Otis Wealth provide?
Otis Wealth offers a wide range of investment alternatives, including the following:
Is it possible to make money with Otis?
It's certainly possible to profit from Otis, as the value of many of their assets has risen in the last decade or two. Of course, the prospective returns on each asset vary, and it is always possible to lose money.
How can you monetize with Otis?
With Otis, there are three ways to profit from your investments.
- 1Hold on to your stock until Otis decides to sell it. They usually aim to keep assets for three to five years. If they can profit on the asset, you get a part according to the number of shares you own.
- 2On their marketplace, you can sell your shares. You can profit if you can sell your items for more than you paid for them.
- 3You'll earn a piece of the profit if Otis finds a way to create revenue with the one in which you invested. Such as through their gallery.
How do I withdraw money from Otis?
- 1You'll select the asset you want to sell and the number of shares you wish to sell.
- 2You specify a minimum price for each share that you're willing to sell it for to the marketplace.
- 3Your trade gets executed when a buyer places an order. They buy shares of that asset at a price that meets your minimum.
- 4Those funds are deposited in your Otis cash account, which you may subsequently transfer to your bank account or use to buy stock.
Otis Pros
Otis Cons
However, the Otis Wealth platform isn't without flaws. The following are some drawbacks to be aware of:
Masterworks Vs. Otis the comparison
The Verdict
The Masterworks approach impressed us. Since you must be "invited" to join the art investing world by completing a phone interview, it has an air of exclusivity. The fact that you can buy the artwork with the biggest profit potential for the lowest price is the deal-breaker. Another major reason investors prefer Masterworks is that it does all of the work for them, including buying, analyzing, storing, and selling.
But only the investor can decide which one they want to choose. We hope this guide gives you ample information to make the best choice for your future investments.