Masterworks Review – How You Can Become an Art Investor
Getting started in investing can be intimidating. Even if you’ve already dipped your toe into stock investing, diversifying your portfolio can seem overwhelming for many. Having a diverse portfolio, however, is one of the best ways to spread out your wealth and minimize risk.
One way to engage in alternative investments is by purchasing shares of valuable works of art. Masterworks.io, an investment platform that allows you to invest in high-value artwork. In this review, I’ll walk you through the basics of Masterworks, explain key features, and help you decide if this investment platform is right for you.
- What is Masterworks.io?
- How does Masterworks work?
- How much does Masterworks cost?
- The bottom line
What is Masterworks.io?
Masterworks is an investing platform that allows you to own shares of popular and classic works of art. Masterworks offers access to blue-chip (high value) art. With Masterworks, you can become a partial owner of an original Picasso, Andy Warhol, or Claude Monet and start investing in art.
This company was founded in 2017 by Scott Lynn in New York City. Masterworks’ mission is to make blue-chip artwork accessible by everyone, rather than limiting ownership to the rich. Masterworks is currently run by 17 employees who have 75+ years of art curation experience, collectively.
How does Masterworks work?
One of the best perks about Masterworks is that you do not have to be an accredited investor through the SEC (Securities and Exchange Commission) to get started. The only thing you’ll need to apply is a minimum investment of $1,000 (which can be spread across multiple works of art).
To begin the application process, you’ll request an invitation to Masterworks via their website.
Once you apply for membership, you’ll receive a waitlist number and then need to complete a phone interview to finalize your membership. This interview is conducted primarily to verify your identity. While I like that the interview is quick, it does seem a bit outdated to confirm identification over the phone, rather than doing so directly online.
Once you’re a member, you’ll have access to invest in Masterworks’ art collection. The company's business model uses an advanced algorithm to determine top artists and collections to invest in, with a proven record of appreciation. When the company purchases a work of art, they register it with the SEC and begin issuing shares. Shares can be purchased in increments of $20, but no one investor can own more than 10% of the shares of a single work of art. Investors then make money when Masterworks sells the art piece and divvies up the net proceeds.
How much does Masterworks cost?
Like all investment opportunities, it’s important to understand the fee structure before making a commitment. Masterworks fees are similar to investing with hedge funds.
Masterworks does not charge a signup fee but does require a minimum investment of $1,000. The platform also charges a 1.5% annual management fee for all members, which is used to cover transportation, storage, insurance, and administrative expenses. This can be paid with a debit or credit card.
When a painting appreciates and sells, Masterworks charges a 20% commission on any profit gained. While this percentage is admittedly high, it does indicate that Masterworks seeks to only buy a piece of artwork that is likely to appreciate, as they stand to gain a profit from each sale. Despite the slightly high commission percentage, Masterworks clearly stands by their process and is not in the market of ripping off investors — they only profit if you do.
Specific artwork selection
If you’re a lover of the arts or think traditional investing is a bit dry or uninspiring, Masterworks might offer a much more enjoyable experience. Not only can you invest in a wide selection of classic and highly regarded works of art — you also get to choose the specific artwork you invest in and can become a partial owner of a piece of art.
Helpful art sales and research reports
Masterworks provides plenty of data on each selection of artwork, making it easier for you to invest in lucrative art pieces. The company provides auction sales report data for any art pieces that were sent to auction, as well as general global art reports recapping the current state of the art market and new art trends.
Masterworks makes sure your investments are secure, safe, and well-preserved, to ensure maximum appreciation at the time of sale. Masterworks keeps all of their artwork in a temperature-controlled, museum-quality art gallery. Your 1.5% annual fee helps cover the cost of your artwork’s preservation and safe-keeping.
Investor trading platform
Another key feature Masterworks provides is access to an investors trading platform, where you can buy or sell your shares using the company’s online bulletin board. If you aren’t prepared to wait for Masterworks to sell one of the pieces of art you own shares in, you can trade or sell using this method.
It’s in the company’s best interests to ensure your artwork appreciates, which means Masterworks only searches for the top artists and works available through the marketplace. By analyzing buying patterns, new trends, and previous historical appreciation rates, Masterworks is able to bring high performing artwork right to your fingertips.
Who is Masterworks best for?
Anyone looking to diversify their portfolio
You may have heard that diversifying your portfolio is a great way to disperse your money and build wealth through a variety of avenues. While I wouldn’t recommend Masterworks as your primary strategy for getting rich quickly, it may be a great option for anyone looking to expand their current portfolio.
Classic and modern art aficionados
If you’re an art lover or art collection specialist, your knowledge will likely come in handy when investing with Masterworks. Although Masterworks prides itself on only picking high-quality artwork likely to appreciate within 5 to 10 years, having additional knowledge of the art world can help you invest in pieces likely to gain the most profit.
Anyone with a small amount to invest
Many investing platforms make it difficult to become a member, with high income or certified investor requirements. Masterworks allows anyone to join and offers membership with just a $1,000 investment. While this may seem high to anyone just beginning their savings and investing journey, this financial requirement is much lower than many other crowdfunding platforms or investing in real estate.
Who shouldn’t use Masterworks?
Masterworks may sound appealing to brand new investors, but I wouldn’t recommend this platform as your very first investment option. If you’re looking to build money for retirement, for instance, I would recommend investing in traditional options, such as 401ks or IRAs before Masterworks.
Anyone with little knowledge of the art world
If you’re not interested in art and do not want to take the time to review art trends, history reports, and market data, I would steer clear of Masterworks. While you might end up making a small amount of money, putting in the research can help you build even more wealth, more quickly. And, if art doesn’t interest you, I’d suggest investing through another type of crowdfunding or traditional platform that you’d enjoy more.
Pros & Cons
Low share prices
Masterworks makes it easy to invest in blue-chip works of art at a low price. Fractional shares start at just $20 and go up in price in increments of $20. While you’ll need at least $1,000 to get started, this low buy-in price makes it easy to spread your money across multiple high-value works of art.
Easy to use platform
One thing I love about Masterworks is how easy it is to use their platform. Purchasing shares of art can be done with a click. The company also provides detailed information about each work of art and artist, so you’re able to quickly and efficiently research your investments prior to buying them.
Art outperforms the S&P 500
One great reason to invest in art is that it’s typically recession-proof. In fact, according to the ArtPrice 100 blue-chip art has outperformed the S&P 500 by over 250% over the past 15+ years. Since blue-chip art is also typically purchased by the wealthy, it tends to not be affected by market conditions.
On the downside, Masterworks does charge a hefty 20% commission on any profit you earn after a work of art sells. Unless you have a good understanding of the art world, it’s unlikely you’ll invest in a diverse number of top-performing artwork, which means your profit margin (after fees) could be lower than it would be when investing in the traditional stock market.
Masterworks anticipates selling a painting within 5 to 10 years through the marketplace, meaning your investment funds could be tied up with this platform for a decade or longer. While you can sell shares through their online bulletin board, this function is still quite new, so there’s no guarantee you’ll find interested buyers there.
Masterworks vs. Competitors
|Accredited Investor Requirement?||No||Yes||No|
|Signup requirement||$1,000 investment||$200,000 annual salary or $1 million+ net worth||App download|
|Registered with the SEC?||Yes||Yes||Yes|
|Fees||1.5% annually; 20% commission on profits||Not disclosed (vary by artwork)||1% fee on invested capital; 0-10% sourcing fee; 10% commission fee on profits|
Accredited investor requirements
Both Masterworks and competitor Otis allow anyone to beginner investing in artwork on their platform, regardless of their investor status. Arthena, however, caters to more seasoned investors and requires accreditation and high net worth to sign up.
Otis has the simplest requirements of all of the art crowdfunding platforms — simply download the app to get started. Masterworks also allows you to sign up online, though you must complete a phone interview to secure your membership and have $1,000 to invest. Arthena requires an annual salary of $200,000 or more or a net worth of $1 million or more.
All three art investment platforms are registered with the SEC.
Masterworks has a simple fee structure, charging 1.5% annually and 20% on all profits earned by artwork sold. Otis has a few additional fees, including a 1% fee on any invested capital, a 0% - 10% sourcing fee depending on the artwork, and a 10% commission fee on profits. Arthena does not list its prices online, but fees vary by investor and artwork.
Is investing in art a good idea?
Blue-chip art tends to outperform the traditional stock market, making it a great investment option, if you have a background in art collection.
How many shares can I buy with Masterworks?
Masterworks issues shares of its artwork in increments of $20. While you’ll have to invest $1,000 initially, you can spread this money across numerous artwork. Though there is no limit to how many pieces you can purchase shares of, you cannot own more than 10% in shares for any one work of art.
How does Masterworks choose its paintings?
Masterworks’ investing platform uses an algorithm designed to analyze fine art trends and data to select blue-chip works of art expected to appreciate over the next decade. All artwork is purchased by Masterworks’ in-house team of expert art collectors and curators from major galleries and auction houses.
Is it risky to invest with Masterworks?
Any investment is risky. Masterworks takes precautions when choosing artwork and looks for pieces that will appreciate quickly over 5 to 10 years. Masterworks collects a commission only when you gain a profit, so the company is empowered to find valuable artwork.
Of course, paintings could depreciate over this investment period, which would lead to a loss or diminishing returns.
The bottom line
Masterworks is an inventive crowdfunding platform designed to help anyone interested in art begin to invest in shares of some of the most influential and valuable masterpieces in the world. The Masterworks platform is easy and relatively affordable, but I would only recommend this software to those with a solid understanding of art who are looking for portfolio diversification.
If you’re looking for a lower-cost option and are new to the art world, Otis is worth exploring. Arthena, on the other hand, is a top option for art lovers with a high net worth.