Masterworks Review 2024

Masterworks could be a good option for people who want to add alternative investments in fine art to their portfolio, but would prefer to avoid the costs, risk and hassles of buying entire works of art themselves. With no minimum investment required, regular investors won’t need millions to buy valuable contemporary art on Masterworks.

Investing in art involves unusual risks, however. It can take three to ten years before Masterworks sells a work of art from its portfolio, and there’s no guarantee that art works will earn a profit when they are sold. According to Masterworks, the contemporary art market delivered an average annual return of 14.1% over the past 26 years.

That makes Masterworks best for customers who are willing to take on some extra risk for the chance of higher gains. In addition, potential investors should ideally have a passion for contemporary art and some basic knowledge of the art world, as you need to choose which art works you’d like to invest in.

For investors looking to generate ongoing income or who want simpler, safer alternative investments, Masterworks may not be a good fit. It’s also not ideal for investors who need liquidity. While it may be possible to cash out your shares early through the Masterworks secondary market, that’s not guaranteed.

To stay safe, it’s best to only invest money with Masterworks that you could afford to keep locked up for years until the platform eventually sells the artwork in which you’ve invested.

The company’s research team evaluates promising contemporary artists, and purchases artworks that they deem have a good likelihood of gaining in value over time.

After purchasing a work of contemporary art, Masterworks files with the Securities and Exchange Commission (SEC) to sell fractional shares in the work to investors via their platform. Registering each work of art with the SEC makes them qualified investments, allowing Masterworks to accept retail investors and accredited investors.

Once the SEC approves a filing for an individual work of art, Masterworks sells shares for 90 days to their members as a primary offering. You can decide how many shares you want to buy at the listed price. The company tends to price fractional shares at $20 each.

Masterworks holds works of art for three to ten years, until they find a good opportunity to sell them to collectors on the contemporary art market. To date, the company has sold seven works of art, with an average realized net return of 17.8%.

• Rhubab by Joan Mitchell; annualized net return of 17.8%
• Staring Into Space by George Condo; annualized net return of 21.5%
• Lady Day II by Sam Gillman; annualized net return of 33.1%
• Mona Lisa by Banksy; annualized net return of 32%
• Lured by Cecily Brown; annualized net return of 27.3%
• Coup de Vent by Claude Monet; annualized net return of 9.2%
• Doppelbild by Albert Oehlen; annualized net return of 36.2%

Once the sale of an art work is complete, Masterworks distributes all proceeds to investors who own shares in the work, prorated by the number of shares owned, minus its own cut of the profits (more on that below).

If you want to cash out your fractional shares before Masterworks sells a work of art, the platform offers a secondary market. Users can buy and sell shares to and from other Masterworks users, although there is no guarantee that there will be buyers your shares at the moment you want to sell. Secondary market prices entirely depend on demand from other Masterworks customers.

Note that the Masterworks secondary market is only open to U.S. citizens who have a bank account with a U.S.-based bank.

Masterworks charges two fees. First, they charge a 1.5% annual management fee based on the total value of your account. They deduct this charge in equity each year, gradually reducing the number of shares you own. You do not have the option to pay the fee in cash.

Second, if Masterworks sells a work of art on the open market after three to ten years for a gain, they keep 20% of the profits. Masterworks uses these fees to offset the extra costs that come with managing artwork, such as storage, appraisals and insurance, along with SEC regulatory fees.

Masterworks does not charge any transaction fees. You won’t owe anything for buying the shares initially or for selling them to another investor on the secondary market.

Excellent Art Investment Research

Masterworks provides users with very good research resources on comporary art and the fine art market. Best of all, they offer a contemporary art price database to track thousands of pieces of art. You can search for specific artists and research going prices for their work.

The database provides financial information about each piece of art, like its most recent sale, its gross appreciation, and its annual investment return. Masterworks also provides articles and videos teaching people about art investing

A Well-Designed Platform

The Masterworks platform is clean, simple and well-designed. It’s easy to find the information you need about the different pieces of artwork and to make investments. You may also access your account via a mobile app.

High Potential Returns

Historically, artwork has a higher return compared to other investments like stocks, bonds, and real estate. Art investments averaged a 14.1% annual return over the past 26 years. During this same period, the S&P 500 earned 9.9% per year.

Artwork can offer extra diversification for your portfolio. The ups and dows of the fine art market are relatively uncorrelated with the stock market, which can hedge your returns against a market downturn.

Accessible for Regular Investors

Investing in fine art has conventionally been the special preserve of the very wealthy. Not only would you need to pay the entire price of a work of art upfront, you would also need the ability to pay for ongoing costs of storage and insurance. There are no fine art exchange-traded funds (ETFs) or mutual funds available.

With Masterworks, small investors can buy shares directly in pieces of art they like. In addition, it’s open to any type of investor. You don’t have to be an accredited investor or high net worth individual to use their services.

Reliable Customer Support

Masterworks offers customer service by phone and by email. You can easily connect with one of the platform’s art specialists during the initial interview. This gives you the opportunity to talk about your goals and risk tolerance, after which the specialists help you pick appropriate pieces of art for your investment.

Users Must Design their Own Art Investment Portfolios

While Masterworks charges a high annual management fee, you are ultimately the one who picks the fractional shares that make up your portfolio. Contrast this approach with a robo-advisor or a mutual fund, where experienced, professional money managers select the investment assets that make up your portfolio.

For investors who have a strong interest in contemporary art, this might not be a major disadvantage. But if you’re not well informed about current trends in the market for fine art, you could be at a disadvantage when it comes to making the best choices.

That said, Masterworks experts vet the quality of each piece and they only list those that they think have good investment potential. But at the end of the day, you need to decide which works are the best fit for you.

Fine Art Investments Carry Big Risks

Masterworks itself warns that investing in fine art carries big risks. Artwork does not generate any ongoing cash flows, like interest payments or dividends. The only way to make a good return on your investment is if someone ends up buying the piece for a higher price years down the road, something that is not guaranteed by Masterworks.

The platform’s secondary market provides users with a way to cash out early, but that also carries risks. While you can try selling your shares, there must be another Masterworks user looking to buy, and that’s not guaranteed either.

Higher Taxes on Fine Art

Fine art is taxed as a collectible, subject to a long-term capital gains tax rate of 28%. That’s higher than the long-term capital gains tax rate on conventional investment assets, which tops out at 20% for the wealthiest Americans.

Requires a Phone Interview

Before you can join Masterworks, you need to have a phone interview with one of the company’s specialists. The interview is not a way to reject some applications; on the contrary, it provides a way for Masterworks to get to know you better, answer your questions and recommend investments.

For some potential users who prefer an online-only investment experience and want to get started right away, the interview process might be annoying.

Secondary Market Only Available to U.S. Citizens

To buy and sell shares on the Masterworks secondary market, you must be a U.S. citizen with a U.S. bank account. This could block international investors from one of the platform’s key features.

Masterworks is a privately held startup company based in New York City that was founded in 2017 by Scott Lynn. The company’s first acquisition was Andy Warhol’s 1979 painting 1 Colored Marilyn (Reversal Series), for a purchase price of $1.82 million. In October 2021, Masterworks raised $110 million in series A venture capital funding, at a total valuation just above $1 billion.