Masterworks review: Invest in art with fractional shares
Moneywise.com / Moneywise.com
3.5
3.5
Customer service4
Ease of use3.5
Investment options4
Tools and resources3.5
Liquidity3.5
Is Masterworks a good investment? Here's what we think
Masterworks is an investment platform where you can buy fractional shares of artworks by upcoming and world-renowned artists.
In my Masterworks account, for example, I own shares of paintings by Banksy, Picasso and Joan Mitchell. If the values of the artworks increase and Masterworks can sell them at a higher price than when I bought them, I’ll get my share of the profits in the future.
A masterful blend of unique risks and rewards
As with other alternative assets, investing in art has unique risks and payoff potential. But, by buying fractional shares, you can tap into the same art markets typically reserved for millionaires by sharing your artwork with others. It’s much like crowdfunded real estate investing but for paintings.
I’ve been happy with my Masterworks experience, and it could be a good choice for investors looking to expand their investments beyond traditional stock market offerings. Let's review the pros and cons to see if Masterworks would fit your financial goals.
Visit MasterworksMasterworks pros and cons
Pros
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Typical returns of around 20%, with some artworks returning more than 75% annualized return
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Access to extensive and detailed artwork pricing research
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Masterworks handles purchases, valuations, sales and secure storage
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Hold until sold, or liquidate shares through a secondary market
Cons
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Some artworks have returned less than 5%
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Somewhat limited history, with less than 30 paintings sold
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High fees similar to hedge funds
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Generally illiquid investments with a multi-year time horizon
What is Masterworks?
Masterworks is an investment company that helps you buy shares of fine art. The company offers a straightforward investment product that’s easy to understand and facilitates investing in the kinds of art previously available only to extremely wealthy investors.
According to Masterworks, contemporary art has outpaced the S&P 500 over the last 25 years and will continue to do so. Blue-chip art prices have appreciated 11.5% annualized (1995 to 2023). Masterworks attempts to outperform the S&P 500, but as with any investment class, there will be winners and losers.
I currently have three paintings in my Masterworks portfolio, including the Joan Mitchell painting below.
According to Masterworks’ most recent appraisals, two of my holdings have declined in value, while this painting is up more than enough to cover the difference.
Founded in 2017, the company doesn’t have the longest track record of success. But Masterworks reports that the assets are held with extreme care and insured for damage or loss, and a listing of past sales shows that all paintings sold to date have earned investors at least some profit.
Moneywise’s interview with Masterworks CEO Scott Lynn
In our interview with Masterworks CEO and founder Scott Lynn, we discuss the historical returns of artworks and how art tends to outperform the stock market. And, as investment funds typically focus on stocks and bonds, artworks are a somewhat untapped market for the typical investor. Many of the wealthiest people buy and sell artworks for a profit, and Masterworks makes it possible for nearly any investor to participate in the high-growth world of contemporary art.
How does Masterworks work?
One advantage of investing with Masterworks is that the process is streamlined and easy to follow online or in the Masterworks mobile app. Here’s what happens behind the scenes to enable your artwork investment:
- Artwork purchase: Masterworks purchases works of art from a list of artists determined by algorithms. It uses records from more than one million art auctions to pick top artists with proven histories of appreciation, with a historical 9% to 39% annual return.
- Creating shares: Masterworks creates an LLC that owns each artwork after purchase and registers the LLC with the SEC. Masterworks issues shares for the full value of the artwork in $20 increments. No individual investor can hold more than 10% of the shares of any specific work.
- Holding period: Masterworks holds the artwork and may even display it in its members-only gallery in New York City. Historically, paintings were sold in as little as around 30 days or as long as almost four years.
- Selling artwork: After the roughly three- to 10-year holding period, Masterworks sells the artwork, ideally for a large profit.
- Profit splitting: When the art sells, the proceeds are divided among the pool of investors. Masterworks takes 20% of the profits as a fee.
If you want to get out early, you can sell on Masterworks secondary market. You can also buy shares of artwork that is being sold on the secondary market, which you can view on its website. Note that the secondary marketplace is only available to US investors.
Members and the public can view a free database on the Masterworks website to research artists and investment prospects.
How to invest with Masterworks
It took me just a few minutes to get approved on the phone, and I asked for a $2,500 minimum investment, which is lower than the standard, to allow me to invest in Masterworks offerings in line with my investment goals.
The typical minimum investment is $15,000, but the onboarding call gives you an opportunity to discuss your investment goals and diversification options one-on-one with a representative, which worked out well for me.
Unlike some alternative investment platforms, you don’t have to be an accredited investor to start with Masterworks. Instead, you must request an invitation and become a member, requiring a phone interview. It would be nice to have a fully automatic online signup process, but an interview is required as of this writing.
How to sign up for Masterworks
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Go to the Masterworks website.
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Enter your email address, or log in with your Google or LinkedIn account.
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Complete the onboarding form to request an invitation.
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Join your interview call to get set up to fund your account.
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Make your first investment when you’re ready.
Masterworks fees, services and minimum investment requirement
Masterworks fees are significant, which is important to know before starting. It charges both an annual account fee and a fee on the profits of any artwork sold. The annual fee is 1.5%. This fee covers things like storage, security and insurance, among other costs.
When artwork sells, Masterworks takes a 20% commission on the profits. This is roughly what you would pay to invest in a hedge fund. That’s pretty steep, but if the artwork appreciates well, you could still make a decent profit.
| Service | Fees |
|---|---|
| Annual fee | 1.5% of investment value |
| Commission | 20% of profits |
*Note: Masterworks' fees are assessed in the form of equity, so you don't have to pay them out-of-pocket.
Masterworks minimum investment requirement
Each Masterworks share costs $20, and the standard minimum investment is $15,000. However, if you ask for a lower minimum investment during your new client interview, you may be granted one. (My minimum is $2,500 per painting.)
Masterworks risk and return
Masterworks is a fairly new company with five years under its belt. That makes it hard to break down exact historical performance. Masterworks sales records show that its investors have earned from 4.1% to 77.3% annualized returns. Returns are typically around 10% to 30%.
To get an idea of the sorts of gains Masterworks expects, we can also look at the Artprice100 index. This index is designed to track the performance of top artists and far outpaces the S&P 500.
If you poke around on the Masterworks website, you can find a history of both winners and losers. Even paintings by top artists, such as Claude Monet and Vincent Van Gogh, occasionally lose value. But gains tend to outpace losses. Better-known artists tend to see less appreciation but also come with lower risk profiles.
Remember that each artist has unique risks. For example, the living artist Banksy could end up in the news for an unflattering reason, harming investment values. Here, there is a whole additional suite of concerns. The artist could wind up in the headlines for poor behavior, which would quickly devalue previous artworks.
Art can also be highly subjective, making some works harder to value. Like with stocks, bonds and other investments, a diverse portfolio can help you manage risk. But, overall, we can think that investments in alternatives like artwork should constitute a small part of your total portfolio.
Is Masterworks legit?
Masterworks is a legitimate alternative investing platform that makes blue-chip artwork more accessible. As with any alternative investment, artwork has unique risks, and Masterworks doesn't guarantee returns or liquidity. You may be stuck holding an artwork for many years and see a loss when it’s sold.
Who should invest with Masterworks?
Masterworks targets investors who want to diversify their portfolios away from more traditional assets like stocks, bonds and other securities. It's also particularly appealing for investors who want to try and hedge against inflation or create some downside protection for the rest of their portfolios through alternative investments.
As an asset class, contemporary artwork also boasts strong returns. As Masterworks frequently advertises, top artists regularly outperform the S&P 500 or other assets like real estate.
If you want to invest for regular income, Masterworks isn't the platform for you since it doesn't pay dividends. For income, consider an investment in a dividend index fund, a REIT, or a platform such as Fundrise.
Overall, Masterworks is an excellent platform if you want to add artwork to your portfolio. And, the potential to outperform the market is there, albeit not guaranteed.
Masterworks vs. Yieldstreet
If you’re looking for Masterworks alternatives, consider Yieldstreet. This investment platform offers a mix of alternatives, including real estate, artworks and venture capital. Yieldstreet features income, growth and balanced investment opportunities, typically starting with a minimum investment of around $10,000 to $20,000.
Direct investments with Yieldstreet are only available to accredited investors, but any investor can buy into the Yieldstreet Alternative Income Fund. This fund requires a 1.5% annual management fee.
Depending on your investment goals, you may prefer Masterworks or Yieldstreet, or even a combination of the two for more diversification.
Is Masterworks worth it?
Masterworks is a unique investment company offering the ability to add a new asset class to your portfolio. Even if you’re not wealthy enough to buy a Monet or Basquait outright, you can still add their art to your portfolio.
While it offers low liquidity and arguably high risk compared to a diverse index fund, it can bring a fun and potentially profitable new type of investment to your portfolio. If you can afford the minimum and can comfortably wait up to a decade to get your money back, Masterworks could be perfect for your investments.
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Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time.
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