Masterworks Review 2022

The Best Way to Invest in Blue-Chip Art

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Many savvy investors know about crowdfunding companies that let you invest in real estate projects without buying whole properties. What if you could do the same with art? Masterworks is an investment company that allows you to buy shares in fine artworks. The innovative investment platform offers an intriguing opportunity. But is it a good idea for your portfolio? In this Masterworks review, we'll take a look.

Commissions & Fees - 6
Customer Service - 8
Ease of Use - 7
Investment Options - 8
Tools & Resources - 7
Liquidity - 7

7

Masterworks is a unique company that facilitates investments in fractional shares of fine artworks. Investing in shares of art is an intriguing concept, investing in fine art comes with some risk and Masterworks charges significant fees. For investors looking to diversify into fine art, Masterworks could be a good way to get started with a limited initial investment.

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What Is Masterworks?

MasterworksMasterworks is an investment company that helps you buy shares of fine art. The company offers a straightforward investment product that’s easy to understand and facilitates investing in the kinds of art previously available only to very wealthy investors.

According to The Wall Street Journal, in 2018, artwork returned an average of 10.6% return versus a 4.38% loss in the S&P 500. Masterworks aims to outperform the S&P 500, but as with any investment class, there are winners and losers.

Masterworks review - Picasso
This Picasso offered an impressive 3.33x return in seven years

Founded in 2017, the company has been around for just a few years. But Masterworks reports that the assets are held with extreme care and insured for damage or loss.

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Masterworks Features

Minimum Investment$0
Fees$1.5% annually plus 20% at sale
Accredited Investor
Investment Length3-10 years
Pre-vetted
Self-Directed IRA
Secondary Market

How Do You Sign Up for Masterworks?

Unlike some alternative investment platforms, you don’t have to be an accredited investor to start with Masterworks. Instead, you have to request an invitation and become a member, which requires a phone interview.

You would think a company that uses Blockchain technology to track shareholders would be forward-thinking enough to let you sign up completely online, but you have to make a real phone call with a human to join. That’s inconvenient. But you can use the Masterworks interview as a chance to ask any additional questions you might have and to go over your goals.

Masterworks Minimum Investment Requirement

Masterworks doesn't have specific minimum investment amounts. Minimums vary depending on the specific investment offerings available at the time of investment. However, fractional shares for artwork often starts at just $20 per share, making this an excellent option for investing with little money.

How Does Masterworks Work?

  • Masterworks purchases works of art from a list of artists determined by algorithms. It uses records from more than 1 million art auctions to pick top artists with proven histories of appreciation. Masterworks targets artworks where the artist demonstrates a historical 9% to 15% annual return.
  • Once it purchases the art, Masterworks registers the art with the SEC and issues shares in $20 increments. No individual investor can hold more than 10% of the shares of any specific work.
  • Masterworks holds the artwork and may even display it in the members-only gallery in New York City. It has a second office in Boulder, Colorado, but no gallery there.
  • Masterworks plans to sell most of the artworks in around three to 10 years. Potential buyers make an offer that must be approved by a majority shareholder vote.
  • When the art sells, the proceeds are divided among the pool of investors. Masterworks takes 20% of the profits as a fee.
  • If you want to get out early, you can sell on Masterworks secondary market. Or you can buy shares of an artwork that is being sold on the secondary market, which you can view on their website. Note that the secondary marketplace is only available to U.S. investors.
  • To research artists and investment prospects, members and the public can view a free database and blog on the Masterworks website.

Masterworks Risk and Return

Masterworks is a fairly new company with just a couple of years under its belt. That makes it hard to break down an exact historic performance. But according to its website, Masterworks has acquired 120+ assets at over $500 million and has seen 30% annualizd returns, net of fees, for its three successful exits.

Having a few exits makes the data a bit less reliable, but this is still a promising rate of return. To get an idea of the sorts of gains Masterworks expects, we can also look to the Artprice100 index. This index is designed to track the performance of top artists and far outpaces the S&P 500.

Masterworks Review - Artprice
Artprice100 index and Artprice Global Index vs. S&P 500. Via artprice.com

If you poke around on the Masterworks website, you can find a history of both winners and losers. Even paintings by top artists like Claude Monet and Vincent Van Gogh occasionally lose value. But gains tend to outpace losses.

We'd be more wary of Masterworks offerings by living artists, such as Banksy. Here, there is a whole additional suite of concerns. The artist could wind up in the headlines for poor behavior, which would quickly devalue previous artworks.

Art can be highly subjective as well, which makes some works harder to value.

Like with stocks, bonds, and other investments, a diverse portfolio can help you manage risk. While investment in artwork might be a fun addition to your portfolio, it should not constitute a big part.

Masterworks Fees

Masterworks isn’t cheap. It charges both an annual account fee and a fee on the profits of any artwork sold. The annual fee is 1.5%. This fee covers things like storage, security, and insurance, among other costs.

When an artwork sells, Masterworks takes a 20% commission on the profits. This is roughly on par with what you would pay to invest with a hedge fund. That’s pretty steep, but you could still come out with a decent profit if the artwork appreciates well.

Is Masterworks Legit?

Masterworks is a legitimate alternative investing platform that makes blue-chip artwork more accessible. That said, it's a risky asset class to invest in, and Masterworks doesn't guarantee returns. It doesn't guarantee liquidity either, even with its secondary marketplace.

How to Contact Masterworks

You can contact Masterworks support by emailing support@masterworks.io or by calling 203-518-5172 between 9am and 6pm Eastern Time.

Best Alternatives

Unless you're a millionaire, it's basically impossible to buy blue-chip artwork on your own. Artwork investing platforms like Masterworks help make this asset class far more accessible. But there are several other platforms you can also consider.

For example, YieldStreet has a variety of investment opportunities, including artwork, real estate, and private equity. Most deals are open to accredited investors, although its flagship fund is available to everyone and only has a $500 investing minimum.

Collectible-investing platforms like Rally Rd also offer artwork, alongside asset classes like luxury cars, rare comic books, wine, and even non-fungible tokens (NFTs). Like Masterworks, it allows fractional share investing with shares starting as low as $1.

We still think Masterworks is the leading platform for investing in artwork, especially with how easy it is to use and the low investing requirements. But consider all your options as well as your risk tolerance before dabbling in artwork.

Masterworks Pros & Cons

pros

  • Allows investing in fractional shares
  • Open to non-accredited investors
  • A secondary marketplace helps improve liquidity
  • An easy option for diversifying your portfolio away from traditional investments
  • Can potentially provide a hedge against inflation

cons

  • You have to complete a phone interview to sign up
  • Investments have a long-term holding period
  • High annual fees and profit sharing fee
  • Limited track record since Masterworks has only had a few exits

Conclusion

Masterworks does not have specific minimum investment amounts. Minimums vary depending on the specific investment offerings available at the time of investment. While there are certainly some opportunities for improvement, it offers an opportunity to diversify into alternative investments without a seven-figure net worth.

That said, Masterworks is best suited for those who can afford to lose all or a portion of their investment. Art buyers can be fickle, and there’s no guarantee you will make money even with a “blue-chip” artist. If you are looking for alternative investments to get out of the stock market and other traditional assets, Masterworks could be fun but risky addition.

Eric Rosenberg

Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time. He has in-depth experience writing about banking, credit cards, investing and other financial topics and is an avid travel hacker. When away from the keyboard, Eric enjoys exploring the world, flying small airplanes, discovering new craft beers and spending time with his wife and little girls.

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3 Comments

  1. One concern I have is that the IRS does not allow investments in art in an IRA. Is the securitization of the artwork as a separate LLC allow Masterworks to get around those restrictions?

  2. You can invest in Masterworks through a self-directed IRA. They partner with AltoIRA for this purpose. Also, to clarify on the minimum investment amounts, there is a minimum investment of $5,000 (250 shares) to buy into their new offerings. There is no minimum to buy & sell shares on their internal secondary market, which artwork seems to be available to trade on about six months or a year after it closes as a new offering. However, I believe in order to be eligible to trade on that secondary market, you have to have first open a Masterworks account by buying into at least one of their new offerings.

    1. I had an interview with Masterworks yesterday. I did not ask the question about investing thru an IRA as it sounded like they could not even transfer funds thru a Fidelity account. Now you have me wondering if I could use a Roth IRA for the obvious tax advantages. Any insights?

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