Masterworks review: Art investing at its finest
Masterworks offers the average saver a chance to invest in blue-chip art through increments. It’s a unique opportunity to diversify your portfolio with access to a consistent, high-yield market.
- Fine art market
- Diversifying your portfolio
- Long-term investments
The idea of making a bit of money go a long way sounds so good in theory. However, for young people and average investors (aka most of us), the choices are often either:
- Too complex and time-consuming (e.g., forex and day trading).
- Too volatile and risky (think the stock market or even cryptocurrencies).
- Just not effective for small savers (your regular bank account).
What if there was an option with low minimum investment and consistently high yields?
The Masterworks platform aims to make the lucrative blue-chip art market accessible to ordinary savers, diversifying their portfolios and promising strong yields.
From fees to fractional art investing, our Masterworks review covers everything.
What is Masterworks?
Masterworks is an innovative platform allowing ordinary people to invest in the fine art world. Founded in 2017 by Scott Lynn, Josh Goldstein, and Hai Minh Tran, it states that its goal is to democratize art investments. The company has its headquarters in New York City and notes that its team has over 75 years of combined experience in art collecting.
So what does “democratizing” art investments mean?
In practice, the goal is to help regular savers and young people diversify their investment portfolios with an option that has traditionally been the preserve of the elite.
But can Millenials afford to be investing in art? Your best chance of owning a Banksy is if you happen to live in the U.K. and the artist paints it on the wall of your house. Even then, most Millennials and Gen Z would lose out because young people are so unlikely to own the house they live in.
The platform believes it has come up with an elegant solution. Not everyone can afford an Andy Warhol, but together, everyone can afford an Andy Warhol.
How does Masterworks work?
Masterworks aims to address the high (and rising) price of art pieces by pooling the resources of its investors. Investments are made in increments but still tied to the value of the artwork — so however small or large your investment, it will rise with the value of the artwork.
You don’t simply “sign up” with Masterworks. Instead, the website lets you request an invitation.
From there, you’ll be taken through a fairly standard sign-up page where you enter your email address and phone number. Note that the platform is only available for U.S. users.
You’ll then receive an email to confirm your Masterworks account. Clicking the “confirm email” link will let you proceed to the next stage of the application, which is completing your investor profile.
The platform will ask you how much you’re planning to invest in the next year and when you’re planning to start investing in art.
There are a few questions about the size and scale of your investments. As you answer each one, you’ll be provided with a figure for how much you could stand to make by investing in fine art. The company is understandably keen for you to see its potential, but I have to admit that the figures are impressive.
You can play around with permutations and go back if you want. I had some fun checking how much different investments would yield over different periods — I recommend that you do, too.
Eventually, you should input accurate information about your planned initial investment and schedule, as this will be useful for your phone interview.
Booking your phone interview
I’m used to being able to click my way through everything that I was slightly taken aback by the idea of a phone interview. Phone calls aren’t exactly the Millennial/Gen Z thing to do.
However, I didn’t mind it. It’s a personal touch that sets the Masterworks platform apart from faceless services that just want to make it easy for you to put money into their accounts ASAP. You’ll arrange your phone interview using Calendly — appointments are available at 15-minute intervals and at your convenience.
You then select what type of client you are (art collector, hedge fund investor, individual, etc.). For most of us, “individual investor” is the right option.
The site will take you to a page where you can look at the current Masterworks art collection and learn more about it. We’ll get more into this feature later because it’s an important part of the educational material available to Masterworks investors.
This may seem like a lot for a basic sign-up process, but remember that there’s not been a fine art investing platform quite like Masterworks. Gaining access to the art world traditionally involves a great deal of privilege, luck, and shaking the right hands at the right dinners.
The phone interview
It seems that you can typically book your interview within a few days of signing up. The phone call is generally right on time and takes around 15 minutes — sometimes less, although you can ask as many questions as you like.
The phone call has a selling tone and is probably scripted to a point. Still, questions are answered promptly and come with pretty helpful investment advice — nothing specific, but a good idea of what kind of person could benefit from opening a Masterworks account.
You’ll be offered the chance to invest in Masterworks’ offerings right away. Seasoned art collectors will already have done their research and might be happy to commit.
For individual investors, I recommend that you treat the phone call as a chance to ask a knowledgeable advisor a few questions. Find out what someone with your minimum investment limit could expect to earn through fractional shares. You don’t need to make an investment up-front — plenty of time for that.
After the interview, you’re pretty much free to invest as you choose. I recommend you continue to research the artworks on offer before making your choice, select an investment you can afford, and then take your first steps into the art investing world.
In addition to the profit made from the artworks that Masterworks sells, user fees are how the platform makes its money. Masterworks charges:
- An annual fee of 1.5% of your investment.
- A one-time 20% commission fee, based on your returns when the painting sells.
The platform claims that the appreciation of blue-chip art is so high that even these fees will give users a good return on their entire investment. And so far, that has been the case. Since inception, Masterworks has offered over 100 paintings and only sold three, each realizing a net annualized gain above 30%.
They also provide more nifty graphs and statistics to showcase art’s performance as an asset class — here’s a screenshot of art prices against inflation, taken from the Masterworks homepage:
It also notes that the annual appreciation of contemporary art between 1995 and 2021 is 14.1%. Now, whether you invest in hedge funds or regular savings accounts, you’re unlikely to see returns anything like that high. Indeed, the homepage provides another graph to illustrate the difference between this rate and the S&P stock market index:
So are Masterworks’ fees worth it?
A 1.5% annual fee on an investment of $1,000 would be $15. That’s somewhat steep over 10 years, bearing in mind that the fee will increase proportionately to the value of the artwork. For a more detailed picture, you can use our handy compound interest calculator.
In addition to the 1.5% annual management fee, the 20% commission comes from future profits.
The fee structure suggests that users should learn more about how contemporary art investments work before they decide to invest in fine art. The projected returns are very high — far higher than many alternative investments, especially for low- and middle-income investors. However, you need to be confident that you’re going to see those returns before committing to this fee structure.
Happily, a characteristic that makes Masterworks worth its users’ trust is the expertise it possesses when it comes to the world of art. With over 75 years of combined experience in its team and a good relationship with expert analysts, it knows the art index well.
Here are some other features and benefits:
Attractive, easy-to-use interface
The interface has simple navigation functions. You can select from:
- How it works. Learn about the platform’s investment strategy and purpose.
- About. Meet the team. Names, photographs, bios, mission statements, relevant experience. This is an underrated feature on many investment platforms. Your no. 1 question as an investor is “why should I trust you with my money?” — and we need to know who “you” might be.
- Price database. Most of this is reserved for registered users, but it gives you an overview of how the platform makes its decisions.
- Secondary market. Also reserved for users — I’ll cover the secondary market shortly.
Scrolling down the page presents you with an attractive series of graphs and compelling information points. Minimal, easy to read, makes its point: there’s good money to be made investing in art.
Once you’re an accredited investor, you’ll find that the price database is very easy to use. It offers intuitive tools to help you understand how different artists’ works have performed using historical auction data, and you can browse Masterwork’s current offerings.
Investing is also straightforward, although a little more attention could be given to explaining the fee structure. I’d recommend reaching out to the customer support team if you’re struggling to calculate what your likely fees will be.
Incremental investments in the fine art market
Masterworks’ incremental investment feature is the most important part of its offering. It allows users to invest in fine art in $20 increments. That’s an affordable amount for the average investor, and you can continuously top up your minimum investment.
But why is access to the art market useful for Millennials and Gen Z? To understand this vital feature’s unique benefits, we need some background.
Why the art market is unique
This asset class is traditionally the preserve of extremely wealthy people. It also consistently produces high-value material, meaning there’s not a finite amount of valuable art to invest in.
It’s unlike the precious metals market in this way. While it’s true that we’re still mining gold, platinum, and other long-term investment prospects, these are finite resources. Artworks are not — there will always be artists, and there will always be keen collectors.
This means that the buying decisions that Masterworks makes aren’t simply competing for a share of a finite resource. There’s great potential to acquire famous paintings at a critical stage in their appreciation, and the strategy is viable in the long term.
Benefits of blue-chip artwork for everyday investors
So what makes blue-chip art different from other artworks? For an art piece to be referred to as “blue-chip,” it needs to have consistently appreciated, as demonstrated by its past performance at auction.
The term “blue-chip” is often attached to the painter’s name rather than the artwork itself; Andy Warhol is an excellent example of this. Minor and undiscovered pieces that initially sold for very little can command a high price when they’re confirmed as authentic works of certain blue-chip artists.
Experts review the performance of works of art before Masterworks decides to invest. It then allows users to piggyback on the purchase through fractional shares, making the ordinary saver an accredited investor in blue-chip art.
Why incrementally investing in art is a good strategy
Purchasing a Claude Monet painting today is harder than it was during the artist’s lifetime — critical appraisal of the best artworks only builds up over time. Today’s million-dollar artwork could soon be worth 10 times that.
With incremental investments, Masterworks investors are tied to that incredible appreciation. This feature is what sets it apart from alternative investment platforms and makes Masterworks a uniquely attractive offering for low-to-middle income savers.
Expertly guided investments
The platform has a research team to determine the value and prospects of artworks. This team works with expert analysts at leading companies like the Bank of America and Citigroup to decide whether a work will provide good enough returns for:
- Investors to see a good return on their money.
- The platform to remain profitable.
Due diligence is a thorough process — the platform isn’t just throwing its money at trend pieces. Fewer than 1.8% of artworks reviewed by its expert panel are determined safe enough investments to fulfill these two essential criteria.
The final step is for the platform to purchase its chosen artworks at the right price. If this goes through, it holds the art at a secure facility for 10 years and offers its users a chance to partially invest in the artwork.
Making an informed choice
The educational materials available in the price database are well-designed and accessible. They provide detailed information and allow users to search artists and specific artworks. You can find out:
- How much was the artwork sold for at historic auctions?
- The gross appreciation of an art piece between purchase and resale.
- Which pieces Masterworks owns and you can invest in.
- Your projected earnings — these are based on minimum investment and duration of the investment.
This is all the essential information you need to start investing in this asset class. I would note that it’s always worth doing more research outside of what the platform offers.
Of course, this is true of any investment — when you’re trusting someone with your money, you should know where they’re putting it. Still, the database is an excellent place to start.
Masterworks secondary market offers liquidity
The Masterworks secondary market is what gives investors some liquidity. This is a subject we haven’t covered in much detail, and it’s arguably a drawback of art investing. It’s a long-term investment that offers fairly poor liquidity if you need to move your money around.
You’ll wait 3-10 years before Masterworks sells a piece. If you need to make a move before then, the secondary market is a peer-to-peer feature that allows you to sell your share to another Masterworks investor.
Masterworks has over 325,000 registered users according to its homepage. That sounds like a decent trading pool, but remember that most of these are ordinary investors who benefit from the incremental investment structure. If you’re trying to offload $2,000 worth of assets, you might struggle to find a buyer.
The secondary market creates liquidity for investors, but it’s important when you approach this platform to plan for it as a long-term investment. As this is what the platform is primarily designed for, it’s the best way to see a good return on your investment.
Assets are protected
When it purchases a new work of art, Masterworks files the artwork away in a secure location until it’s ready to sell. Knowing that your investment is protected is always important, and this is especially true in the art world.
Art isn’t inherently regulated by the securities and exchange commission, although Masterworks will always file an offering circular with the commission before allowing outside investment. Still, the nature of the art world means that there’s less built-in security for investors. Details of the secure arrangement naturally aren’t shared with the public, but it’s reassuring to know that protective features are in place.
A chance to diversify
Millennial and Gen Z investors are accustomed to hearing about the need for a diverse portfolio, and subsequently being presented with a very limited set of options.
The stock market presents good investment opportunities, but it’s volatile and complex. Cryptocurrencies and forex trading are even riskier and require your constant attention. Many exchanges are also unregulated by the Securities and Exchange Commission, which isn’t a great sign.
A traditional bank account offers a relatively low yield. We all have them, but that’s because they’re stable, safe, and accessible, rather than investments that are going to let us buy a house or put our kids through college.
Long-term, tried-and-tested prospects like the precious metals market often require a high minimum investment. That’s why they typically belonged in a similar exclusive category as art investment platforms.
However, being able to own fractional shares of artworks changes the game for ordinary investors. Masterworks has brought a diversification option that offsets our more involved and short-term investments in the stock market or forex. Opening up alternative investments to young people and everyday investors is the platform’s core goal.
Shield against inflation and volatility
A key feature of blue-chip art is that its value consistently increases ahead of the rate of inflation. Even in times when inflation is very high, you can expect art investing to remain well ahead, in contrast to options like the stock market.
Art sells at a price that satisfies the seller — this is why art collections are often built up over centuries. Art investments are a protective shield against market volatility and high inflation rates. It has a habit of surviving turbulent economic times and is known as a commodity that will always be valuable.
My experience researching Masterworks
While writing this Masterworks review, I found the platform to be open and transparent about its structure and business model throughout. Its site is well-designed and easy to navigate, and I like that there’s plenty of information about the company’s staff, goals, and motivations.
Sign-up process and Masterworks usability
The sign-up process took a little longer than signing up for some investment services, but this was mostly due to the phone interview. If it had taken longer than a few days to book the interview, I might’ve considered that a negative, but everything seemed straightforward.
The interview itself is a good chance to get to know more about how Masterworks makes its decisions. Users should be aware that it’s a selling conversation before beginning the interview. However, the customer service is helpful and well-informed.
What could be improved?
The secondary market is a useful feature, but somewhat limited. The company won’t sell shares back to users, which means that unless you can find a buyer, liquidity is relatively low.
One area that it might emphasize more to potential investors is its fees. The relatively high fees will be what lets Masterworks work as a viable business — the platform would be useless if it didn’t exist.
However, with the gains users stand to make from successful long-term investments, Masterworks could afford to signpost the 1.5% annual management fee and 20% equity fee more openly. Stressing that users still stand to make 8%-30% gains after these significant deductions is an impressive statistic.
Overall, writing this Masterworks review has left me with a positive impression of the platform. Its bold approach to making works of art accessible investment opportunities for Millennials and Gen Z is exciting but needs to stand the test of time before we can call it a game-changer.
Who is Masterworks best for?
Masterworks markets itself towards Millennials, Gen Z, and low-to-middle income earners. Its goal of democratizing ownership of works of art makes it appealing to those who traditionally wouldn’t have access to high-cost, high-yield assets.
- Long-term investors. If you’re planning to invest in fine art, you need to have well-defined long-term goals. This platform is excellent for those who want to see their money come back in 10 years with an attractive yield.
- Lower earners. Being able to contribute with increments of $20 makes the platform accessible to low-to-middle income earners. You can top up your contribution regularly and receive excellent long-term benefits.
- Keen researchers. The Masterworks insights you gain through membership are attractive, but I’d always recommend doing extra research to improve your decision-making. This includes learning about artists, types of artwork, and auction history.
Who shouldn’t use Masterworks?
If you think you might want to walk back on your investments in the next few years, Masterworks may not be the platform for you. The secondary market provides some liquidity but isn’t an ideal tool for those who need higher levels of liquidity in their investments.
As part of a diverse portfolio with more liquid assets, though, you shouldn’t need to use this feature.
Masterworks pros and cons
- Simple interface — The platform is easy to navigate, with good features and helpful content.
- High yield — It provides access to a market that offers an excellent ROI for low- and middle-income investors.
- Run by experts — Masterworks provides evidence that its decisions are made using extensive research and solid information.
- Incremental payments — You don't need a big lump sump to invest. You can continuously increase your stake to see a better yield.
- High fees — Although the eventual ROI is still very high, the fees charged by the platform are relatively steep.
- Requires research — Getting involved in art investments is something you should only do if you understand what you're investing in.
Masterworks vs. competitors
|Masterworks||Yieldstreet Prism Fund||Otis|
|Fees||1.5% p/a plus; 20% of yield||1%-2% p/a||10% sourcing cost; 10% of yield|
|Investment options||Fine art||Real estate, art financing, litigation financing, supply chain financing||Fine art, vintage collectibles|
|Minimum investment||$500 - $1,000||$500||Varies by asset|
Yieldstreet Prism Fund
The Yieldstreet Prism Fund offers a slightly different art-related service. It allows users to invest in art that is held as collateral — the yield comes from interest on the debt.
Unlike with Masterworks, you don’t “partly own” the artwork when you invest using the Prism Fund. Returns are likely to be lower, although there is also less risk (in case the value of the artwork suddenly depreciates).
Fees are similar, with Yieldstreet charging around 1.5% per annum. Overall, the Prism Fund offers a slightly more conventional approach to investing, but with less potential to reap the benefits of long-term investment in the art world.
Otis offers a similar service to Masterworks, but diversifies into collectibles as well as fine art. You’re as likely to find vintage comics as Warhols. This is intended to more tangibly put investments into users’ hands.
The issue with Otis is that by attempting to simultaneously offer art and collectible investment opportunities, it’s not quite achieved either. Vintage items don’t appreciate as consistently as fine art, meaning that the fees the platform charges are too high for its prospective returns.
The bottom line
Simply put, Masterworks is offering something that nobody else is: a chance for Millennials, Gen Z, and lower earners, to access a market that has been incredibly successful in making very rich people even richer for centuries. It’s giving us a slice of that pie, and it looks pretty tasty.
The Masterworks pros have laid out their credentials and I’ve taken a good look at them. I have to say, I’m impressed. Some areas could be improved on, such as fees, but anyone interested in long-term, high-yield investments should look into creating an account.
Featured image: Pla2na/Shutterstock.com