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Masterworks Review: An Investment Platform For Fine Art

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masterworks reviewThis post is sponsored. All opinions are my own.

Are you looking for a new way to invest your money?

Would you like to explore putting your money into passion investments, like fine art, but not sure where to start?

Masterworks is bringing to life the first platform where the public can invest in art.

Whether you are an art lover or, looking for an alternative type of investment, Masterworks will allow you as an investor, to purchase interests in a painting, just like investors purchase shares in public companies.

Sound interesting?

Keep reading to get the full scoop on how investing in fine art is on the rise and learn about how the entire process of investing in artwork works.

You can view this post in video version by clicking the play button below.

A New Trend in Investing: Art

Wondering if investing in art makes good financial sense?

Actually investing in art is hardly a new trend but, it is on the rise, being adopted by more and more people because of:

  • Historical returns
  • Historically low correlation
  • And, more!

According to The Wall Street Journal, art was one of the best investments of 2018.

If you want to diversify your portfolio, look to investing in art.

It has a global customer base and demand is not just limited to one country or region, despite financial crisis in an area.

Art is an investment that can be a great fit for anybody, even those that feel they don’t have the right knowledge or enough money to make the investment.

We’re going to crush those fears in this article.

The price of art keep increasing, while other investments are on the decline.

According to Deloitte’s 2017 Art & Finance Report,” the total U.S. investment in art will top $2.9 trillion over the next 8 years.

That means now is a great time to get in and invest in art.

Enjoy and reap the benefits for investing in lucrative assets, artwork!

Masterworks can help you get there!

What is Blue-Chip Art?

Blue-chip artwork, as defined as those paintings by the top 100 artists in terms of sales volume, has outperformed the S&P 500 by more than 250% from Jan 1, 2000–Dec 31, 2018, according to Artprice.

This is the kind of artwork we’ll be discussing below.

It’s important to know about blue-chip art because it is a multi-million dollar industry and has long been a cornerstone of investing for the wealthy.

It’s important to note that these paintings are very expensive to acquire and it should be said that the art market itself, is generally associated with high fees and lack of transparency.

Masterworks is breaking the barriers here, making blue-chip artwork as investment class available to anyone to invest.

Why Add Fine Art to Your Portfolio?

There are many benefits to investing in art:

  • Diversification
  • Relationships between fine art and financial markets
  • Increasing demand for fine art

Diversifying your portfolio

Diversifying your investments is super important.

When it comes to your finances, diversification is a smart practice, in general.

That’s why you hear online marketers and entrepreneurs talk so much about diversifying income streams.

You don’t want all your eggs in one basket.

Because if you do and that investment (or income stream) fails, you’ll be out of luck and you would have lost your income.

For example, if you are a freelance writer with one client as your sole source of income, what happens if that client decides to sell their business? Or, discontinues working with you?

All your income is gone in an instant.

So, as a freelance writer, diversifying your income may look like this:

  • Managing multiple, different clients
  • Working for individual professionals as well as big companies
  • Growing your other skills to work in adjacent industries like social media management, virtual assistance, or ad management
  • Starting a blog as an alternative income source

According to this source, if you are investing in a number of different financial products, when the value of one falls, you’ll need the remaining assets available to you, to maintain or increase their value, helping you to limit or offset any potential losses, as shared in the example above.

Diversifying helps you spread out your investments and venturing into fine art is a great way to accomplish that.

The Relationship Between Fine Art and Financial Markets

Researchers are trying to quantify the relationships between financial markets and fine art.

What’s been found has been that art prices are more highly correlated with stock market returns in the previous period than what was expected.

Rising Demand for Fine Art

The demand for fine art is rising.

In recent years, while we saw the financial markets decline (2007-2008), fine art was rising, at $630 million in 2005 and reaching $2.2 billion just a few years later in 2008.

And, in 2015 fine art sales reached $4.2 billion.

Last year the market reached $67 billion!

How Should You Invest in Fine Art?

According to The Wall Street Journal, did you know that 8% of total wealth is invested with passion in mind, like art investments?

And, in fact, this professor in this interview says that up to 10 to 20 percent investment in passion projects is reasonable, based on your personal risk tolerance.

What to Consider?

  • Fees
  • Investment performance

Understanding the Fees

When it comes to investing in fine art, it’s important to understand all the fees and charges.

That’s one thing you will love about Masterworks.

They make they entire process seamless and their fee structure is totally transparent.

They have a fair, simple fee structure that you’ll appreciate.

Knowing about the Performance of Your Investment

You will want to be in the know about how your investment is performing.

With Masterworks, you will get exclusive market insights to monitor your investment.

They use data and analytics to one of the world’s largest unregulated markets by publishing timely content and making the entire process transparent.

According to this report, the best investments are in works of art.

The report shares that the best investments aren’t in stocks, bonds, or even gold, it’s in artwork!

Check out these statistics about the art world:

  • Half of the major art collectors in the world are American
  • The most expensive piece featured is Interchange by William de Kooning, bought for $310 million
  • The least expensive piece is Nude, Green Leaves and Bust by Pablo Picasso, purchased for $119.5 million
  • Some artwork has become an extremely high value asset based on rarity and fame

The Problem with Investing in Artwork

If you’ve wanted to invest in art, you may have come across these problems:

  • High cost
  • High barrier to entry
  • Unsure of authenticity
  • Difficulty in caring for asset

High cost to invest

First and foremost, investing in art, especially high-value art is expensive.

For many years, this form of investment was reserved for the very wealthy.

While you can purchase giclées (a duplicate reproduction) that can still be valuable, the original art is always going to hold more value.

So then you are posed with investing $10,000 in one piece of art, for example, unsure of when you are going to get your return and sitting on that investment for an unknown period of time.

The cost to invest in art in this scenario is high in price and time.

High barrier to entry

What makes the barrier to entry high for art investments is not the cost alone.

Many people lack the knowledge to make well-informed decisions about an investment in artwork.

Art investing is much different than investing in stocks, bonds, and mutual funds.

You have to look at many factors and it’s a much different approach in general, compared to traditional investment methods.

How to authenticate art

For investors interested in exploring the art world, it can be difficult to know about the authenticity of a piece of art.

There are plenty of places to purchase art: galleries, art fairs, auctions, online.

When it comes to making your art investment, you want to be confident about your purchase and be cautious, by:

  • Researching the artist
  • Researching the artwork
  • Investigating the dealer

A lot of outside factors can influence the sale of art, like marketing hype, for example, and new art investors can be susceptible to this.

Authenticating art can be one of the most difficult parts of the art investing process and new art investors just don’t know where to pursue this.

Difficulty in caring for art

Once you buy the artwork, a part of the process often forgotten is the care of the art.

While having a physical asset as an investment is something that can be appreciated by many investors, it can also cause a lot of difficulty and stress, when trying to provide adequate care and storage.

Do you display the art, to show off its beauty?

Should you store it away to preserve the quality?

Should it be insured, or not?

These are some questions you should consider and overall, this part of the process can make the entire art investment venture very discouraging.

Why Even Invest in Art?

So you might be thinking why should you even invest in art with all these problems?

Well, Masterworks will ease your fears by addressing all of these pain points.

Lower investment

Higher investment?

Not with Masterworks.

Unlike traditional art investing, you won’t be required to foot the entire cost of the piece of art.

They make high value art attainable for the masses so the regular investor can have access to blue-chip art, by purchasing a share of it.

Low barrier of entry

In addition to the lower cost of investing, you also will be working with the knowledgeable group of experts at Masterworks-collectors, dealers, and more.

Almost a century in combined experience, having founded companies valued at over $1 billion.

You can learn more about the founders, cofounders, and the entire Masterworks team here.

Access to Experts and Managed Support

You’ll come together with a group of investors to invest in blue-chip artwork.

You won’t have to possess the knowledge or hire an advisor to help you with authentication, art selection, artist research, care and storage, and more.

As a Masterworks investor, all this is taken off your hands, passed onto the expert staff who will manage all these key components for you.

Here’s how you can get started investing in art with Masterworks…

How to Invest in Art with Masterworks

This type of investment is accessible by virtually anybody.

You’ll get a chance to purchase a fractional interest in great artwork.

It’s works pretty easily, in this 6-step process:

  1. Buy a Painting
  2. Take it Public
  3. Sell Shares to Investors
  4. Receive exclusive art market insights
  5. Create the Means for Investors to Trade Shares
  6. A Collector Wants to Buy and You Vote

Buy A Painting

The Masterworks team selects paintings (blue-chip art) to invest in, based on:

  • A review of sales data for similar works with historical appreciation rates between 9-15% and,
  • Attempts to buy them below fair market value through auction guarantee strategies and,
  • Established auction house relationships.

They actually review hundreds of opportunities to buy art, every single year.

They are comprised of a seasoned team with over 75 years of combined experience as collectors, dealers, and auction house professionals.

Take it Public

Anyone is able to invest.

After they purchase a painting, they file an offering circular with the Securities and Exchange Commission (SEC) and respond to SEC comments to qualify the offering.

You can view their first offering here.

Sell Shares to Investors

They have a simple fee structure.

They charge a 1.5% annual management fee.

This goes toward:

  • Covering distribution costs
  • Covering regulatory expenses (filing and ongoing audit expense)
  • Storage and gallery space
  • Insurance, and
  • Other expenses.

And, earn 20% of the profit if the painting increases in value.

Once the offering passes SEC and FINRA review, investors will be able to buy shares for $20 per share.

Exclusive Art Market Insights

You’ll get timely information showing you how your investment is performing.

Trade Shares

In the next twelve months, one of their goals is to facilitate trading or sales through brokerage relationships, though no assurance can be given that we will be able to establish a trading market for the shares.

Receive a Purchase Offer and Vote

Artwork is continuously available for sale and when an offer is received by a collector, it will trigger a vote to sell among all shareholders.

If holders of a majority of shares vote to sell, your share of the net proceeds, if any, will be distributed to you (after the costs are deducted, as we disclose in the Offering Circular).

How to Make Money on the Art Investment

There are two ways you can make money on your investment:

  • Upon the sale of the painting
  • Through brokerage relationships

Make money on the sale

The goal is to own each painting for 5 to 10 years but, the painting will be available for sale continuously and collectors will be given the opportunity to make an offer at any time.

As a shareholder, you can vote with others and decide whether to sell.

If the painting is sold, your share of the net proceeds, if any, will be distributed to you.

Make money through brokerage relationships

Future brokerage opportunities that may be available.

Frequently Asked Questions (taken from Masterworks FAQ section)

You’ve got questions, they’ve got answers!

1. How does Masterworks choose paintings to invest in?

Masterworks focuses on acquiring blue-chip artwork from the major auction houses.

The acquisitions are based on artwork representative of a top 100 artist’s mature style, that it is able to acquired at an attractive cost relative to value.

2. How can shares be sold on the secondary market?

They seek to facilitate trading or sales through future brokerage relationships.

3. What happens when a painting is sold?

Following a sale of the painting, this is what happens:

The art will be liquidated and the net proceeds (after fees) will be distributed to the shareholders in accordance with the priorities set forth in the operating agreement.

4. How often will new paintings be introduced?

Masterworks plans to acquire new artwork often. Every ~2 months or so, which will allow investors the ability to further diversify their art investment portfolio.

5. How are shares taxed?

Masterworks issuers are LLC’s ( limited liability companies) and they are taxed as partnerships.

Each shareholder will be issued a Form K-1 following the end of each tax year.

They don’t anticipate that any Masterworks issuer will generate taxable income during any tax year, other than during the years that artwork is sold, and only if the sale is at a profit.

The artwork title is owned by the Masterworks issuer will be vested in a wholly owned Cayman Islands subsidiary of the issuer that is taxed as a corporation.

The tax consequences to investors will vary depending upon their specific circumstances and they advise you consult your tax advisor prior to making an investment.

Advantages of Investing with Masterworks

  • Simple and fair fee structure
  • Timely market reports
  • An opportunity to diversify your investment portfolio, and make passion investments, in artwork
  • An opportunity to make a potentially fruitful investment
  • The opportunity to invest in high value fine art, a sector that has long been reserved for the uber-wealthy
  • Helpful knowledge resource center

Disadvantages of Investing with Masterworks

  • Entering into an unregulated market
  • The financial risk of investing
  • The risk of a painting not selling
  • Potential of your money being tied up for up to 5 to 10 years

Masterworks Review: Final Thoughts

The question is, should you invest in Masterworks?

Are you looking for a way to diversify your portfolio?

Do you want to invest in a market that’s been on the rise for the past decade (or longer)?

Want the chance to own a piece of history and culture?

If you answered yes to one or more of these questions, then consider investing in Masterworks.

Our opinion is that you should include Masterworks in your investment portfolio, for some of the reasons stated above:

  • It’s a great way to diversify your investments
  • You can participate in an asset market that was once not within reach, by the majority

Not to mention, the sense of pride you’ll get by being part owner to a piece of culture, a valuable piece of fine artwork.

Think about it.

Owning an Andy Warhol is out of reach for a lot of investors but Masterworks makes it a possibility.

By the way, you can learn more about their first offering, an Andy Warhol, here.

Curious about smart investing tips in general? Look at these investing tips anyone can do.

So, what do you think?

Would you invest with Masterworks?

What famous artwork would you want to be part owner of?

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