I’ve been writing a lot about traditional investing over the last couple of months. Today I’m going to let the pendulum swing the other way and write about a non-traditional investment – art.
Have you ever wanted to invest in art? I have. Though it’s not because I love art. I like art, but my taste in art is not shared by many. The reason I’d want to invest in art is simply because it indicates that I’ve reached a certain (high) level of financial success. When I think of the average art investor there’s a monocle and a top hat involved. Don’t you have a similar picture?
That may be an outdated view of what the super wealthy look like, but you get the idea. I’m not sure if I’m the art gallery kind of guy. Plus, if art galleries aren’t going to sell to Daniel Radcliffe then they certainly don’t want anything to do with me, right?
What is Masterworks
Masterworks is an investment platform that is an alternative to typical stocks, bonds, and real estate. Masterworks focuses on art (hence this article’s title). Like many of the real estate crowdfunding websites, people own a fraction of a painting. No, it’s not like owning Mona Lisa’s eyes. That would be gross! Instead, you own a fraction of the value of a painting, just like when you buy a stock you own a fraction of the company.
If you are a fan of art, throwing a million dollars at a piece isn’t reasonable. Maybe Harry Potter can pull it off, but I certainly can’t. I can, however, put fewer dollars to work and tell people at parties that I’m an art investor. Better yet, I can give my wife a real Monet for her birthday (or part of one).
Why Invest in Masterworks Art?
Recently a bunch of billionaires got together for the annual Davos conference. They seemed depressed. They have a lot of cash. With the stock market continuing to soar, they have few places to invest it. There are just no bargains to be found. Many may also be concerned about the COVID-19 coronavirus and how that may impact earnings that companies like Apple have warned investors that it isn’t looking good.
Maybe they should invest the cash in art? They probably already do.
Why should you invest in art? Maybe you find yourself thinking the same kind of thoughts. You may have noticed that I’ve become bored with traditional investing (example: investing for 2030). If you are feeling the same way, non-traditional investments could be a good place to look. Art isn’t correlated to stocks, bonds, or real estate. So if the market goes down, it may retain its value.
How Masterworks Works
Masterworks uses a database of more than a million art sales to determine the artwork that best fits its objectives. They analyze whether the artist appreciates well and whether he/she has a large base of collectors. According to the website they look for “historical appreciation rates between 9-15%.” Rather than go into all the methodology here, you can read more about how Masterworks works here.
Masterworks physically buys the painting and puts it on display in New York City. As an investor, you can set up a member’s only viewing appointment. After all, you should be able to see your own art, right?
If a collector makes an offer on the artwork, the shareholders of the art get to vote on whether to sell. If it is decided to sell, then the transaction is made and everyone gets their share of the sale. One thing to keep in mind is that if a collector doesn’t make an offer, you can’t simply sell shares. Masterworks seems to be exploring the ability to trade shares, but that feature is likely to be coming down the line.
I wouldn’t expect a quick turnover in this kind of market. It would be the kind of investment that you buy and hold for a long time.
How Does Masterworks Make Money?
This is always an important question to ask when investing your money with other companies. Masterworks keeps 20% of the profit from the sale of each piece of art.
In addition to what Masterworks keeps, there is a 1.5% annual fee for the storage, transportation, and insurance of the artwork. I look at that as just the cost of doing business when you have to handle physical assets.
I honestly didn’t think that art investing was for me. I still don’t know if it is. However, now that I see that they have an actual Monet – my wife’s favorite artist – I might not have much of a choice. If I invest, I may take the trip down to see the art. I might find that I’m an art gallery type of person after all.
Darcy @ We Want Guac says
Maybe Masterworks isn’t right for you, but art investing isn’t out of your purview yet. If you head to the Sotheby’s or Christie’s websites they have online bidding up for certain pieces – including ones less than $5,000. I like poking in there from time to time (also with dreams of being an art investor) and I remember seeing pieces from Picasso and others (!) for less than $8k. How do those prices compare to Masterworks?
Caroline at Costa Rica FIRE says
I think successful investing in anything requires a willingness to cover that market and do ongoing research — whether that’s art, collectibles, or individual stocks or real estate. So even though the tech might exist to make a category more accessible that still doesn’t make it easier to succeed. And if there is no natural advantage for you it isn’t much diversification either. I’ll stick with my real estate, businesses, and buy-and-hold mutual funds in the background!