Nothing makes a statement of class like having an original piece of fine art hanging on your wall. However, for the vast majority of us, that’s nothing more than a pipe dream. Paintings by blue-chip artists are generally sold privately, with only the ultra-wealthy set invited to the party.
However, buying artwork has begun trending as an alternative investment vehicle in recent years, thanks to a company called Masterworks. This startup has developed an investing platform which has amassed over 800,000 users over the past five years, by allowing ordinary people to purchase fractional shares in paintings by Monet, Soulages and Warhol.
By purchasing shares via Masterworks, you might not be able to have a Jean-Michel Basquiat painting hanging in your Hamptons summer home’s mahogany-lined library, but you’ll be in position to profit handsomely when the painting is resold. While past performance never guarantees anything, it’s surely noteworthy that Masterworks paid out over $25 million to participating investors last year alone.
After all, choosing the right investment opportunity can be a major pain, with stocks, crypto, real estate, and other forms all having their own advantages and disadvantages. Hours, or even days, of market research to find the perfect stock can be derailed by a conflict across the globe that tanks the entire market. Art, on the other hand, is less swayed by these trends than other asset classes.
Is Artwork a Good Investment?
Although all investment opportunities carry an inherent risk, art is one of the safer choices. In the past 26 years, the contemporary art market has returned an average annual return rate of 14.1%. By comparison, the S&P 500 returns about 10% or so in the average year.
In addition to the financial reasons, there is also a very practical one as to why art is a good choice for investment: it’s never going to go out of style. Art has been in demand by people with discerning taste for thousands if not millions of years, from cave paintings and dolls made out of animal bones to gilded eggs and subversive urban murals.
No matter what’s going on in the world, people will always want art to adorn their walls – particularly the wealthy, who have always been willing to pay high prices to get it.
How Does Masterworks Work?
Masterworks purchases works of art at public auction or through private collectors. Then, they sell shares of that painting to investors, much like a person would buy stock in a company like Ford or Apple.
The company creates a securitized limited-liability corporation (LLC) for each piece, granting anyone who buys the painting partial ownership. When the painting is eventually resold a few years later, the investor receives a payout proportional to their share of the painting, minus a 1.5% fee and 20% of the purchase price.
For example, imagine that Masterworks buys a Banksy painting from a private collector for about $1 million. They then sell shares of that Banksy at about $20 each, with each of the shareholders then owning a fraction of the painting. A year later, the painting is then resold to a different private collector, who pays about $1.5 million. After fees, if someone on Masterworks had spent $10,000 in shares, they’d profit $3300.
This isn’t a hypothetical example, mind you. It actually happened. And although the fee structure may seem high at a glance, it is actually quite reasonable when you consider that the fee goes towards art-buying staff, maintenance of the art pieces, a top-notch legal department, and many other aspects of purchasing and preserving art that investors no longer need to worry about.
To invest in a million-dollar painting 20 years ago, an investor would have needed access to the purchase price by themselves or with a group of other people that they trust not to rip them off, store and protect the painting, and then find a buyer on their own. Under the Masterworks system, the company’s team of experts does all that work, and the only thing the investor needs is patience, as it may take time to turn a profit.
It should be pointed out, of course, that Masterworks is not an NFT. Non-fungible tokens involve trading digital tokens that function as representations of art or other items, whereas Masterworks investors are using a virtual platform to buy a fractional piece of a physical item. Although there can be some similarities, it is important to note that the two are not the same.
Final Thoughts
Masterworks provides an excellent investment opportunity for people looking to get into the world of art. Between the company’s proven results, simplified art investment process, and the simple fact that art will always exist and be in demand, Masterworks is one of the easiest ways for a non-wealthy person to invest in artwork.
If you’re unsure about how you’d like to invest your money, have been burned by the stock market or crypto in the past, or just want to try something new, using Masterworks to buy a fractional share of a beautiful work of art can be an attractive investment opportunity.
