How it works and what to know before investing
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Investing in multi-million dollar paintings usually requires a lot of capital. Private start-up Masterpieces is meant to change that.
Masterworks makes the art world a little less exclusive by offering ordinary investors the opportunity to own a fraction of these high-priced investments with a much smaller amount of money.
Through the Fine Arts Investment Platform, users can buy (and trade) stocks in what the company has defined as “top-notch” art: masterpieces of art. artists like Pablo Picasso, Claude Monet, Andy Warhol, Banksy, Kaws, Jean-Michel Basquiat and more.
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Scott Lynn, founder and CEO of Masterworks, told Select he started the business in 2017 after seeing the value of his own art collection appreciated and convinced that it should be available for all types of people. ‘investors. After all, not only is art a good way to add another asset class to your portfolio, investments in contemporary art have also outperformed the S&P 500 over the past 25 years (offering an annual return of 14% against the 9.5% annual return of the S&P 500), depending on the Citi Global Art Market Chart, cited by Masterworks. Keep in mind, however, that past performance does not guarantee future success.
The Masterworks platform now has over 250,000 registered investors, most of whom are looking for another way to diversify their portfolios. Below, Select details how Masterworks works and what you need to know before joining.
Masterpieces offers an affordable way to invest in art. What was once an option reserved exclusively for high net worth investors is now available to investors of all types. Here’s how the platform works:
Masterworks will buy a painting and file it with the SEC as a public offering, or IPO, the same way a business goes public. The shares of the paint are then available for purchase on the Masterworks website for as little as $ 20 per share. The company says it launches about one new paint every four to five days.
The platform is particularly distinguished by the use property data to determine which artist markets have the most momentum, focusing on the very high-end segment of the art market that has predictable returns, the company says. Meanwhile, his research team is working in the background to calculate the appreciation, correlation, and loss rates.
Masterworks even recently added a secondary market, where investors can trade stocks in paintings. In addition, Masterworks allows you to invest your IRA income in their fine arts through its Partnership with Alto IRA, an alternative investment platform.
Masterworks fees and how to get started
Investors of masterpieces are required to make a minimum investment depending on the work of art in which they are investing. Individual investors are limited to owning no more than 10% of an individual work of art.
Masterworks charges an annual management fee of 1.5%, and the company takes 20% of the profits from the sale of a work of art. Other applicable fees may apply, which are detailed in the offering documentation that investors receive.
While the management fee and 20% of profit fee is industry standard for a hedge fund, these fees are relatively high compared to investing in something like a market-tracking index fund. . But like most alternative investments that come with high fees and higher risks, fine art can offer potentially higher returns than investing in traditional investment vehicles.
Once an investor’s account is activated, they can choose individual paintings to invest in, however, this may take some time as the business is currently operating on a waiting list. Those interested can visit the Masterpieces website and apply for membership, which requires a phone interview with the company’s membership team to discuss your art investment goals and risk tolerance.
Acquiring an iconic piece of art at a price that doesn’t break the bank can be quite alluring, but be aware that investing in art is a multi-year commitment. You need to be comfortable leaving your money locked up for years or even losing it.
Lynn warns that users should think about Masterpieces’ works of art as long-term investments, which is why the company doesn’t even allow people over 70 to use the platform. Investors must wait until Masterworks sells the painting in order to hopefully see a gain. Or, the investor may seek to sell their art shares in Masterworks’ secondary market before the company sells the painting.
Masterworks aims to hold its artwork for three to ten years, after which it will sell the painting and distribute the proceeds among investors based on their number of shares.
While Masterworks’ business model is to focus on established artists and works that have a good track record, be aware that like any investment, art is always risky. Buyers’ tastes can change and art / artists can move in and out of style, which affects the resale values of works. Masterpieces pre-checks artists and works of art, but the art market as a whole operates in a much less regulated environment than the stock market.
Before you dive into the world of art investing, first make sure you’ve achieved some important financial goals like paying off high interest credit card debt, creating a emergency fund and setting up a 401 (k) or IRA that you continually contribute to. Charles Schwab, Fidelity Investments and robo-advisor Improvement each offers traditional and Roth IRAs that help you maximize your retirement savings.
Once you’ve established a solid financial foundation, then it may be wise to see what investing in some of the most iconic works of art can do for your long-term wealth.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.