[{"@context":"http:\/\/schema.org","@type":"Article","articleBody":"When we think of alternative investments, we usually think of gold, hedge funds, or commodities such as coffee and oil. Fine art doesn\u2019t usually spring to mind.  However, did you know that fine art investments have seen greater returns than the stock market for the past two decades? According to The Wall Street Journal, art returned more than 10% during 2018, versus a 4.75% loss in the S&P 500.  In this Masterworks review, let\u2019s check out an investment platform that wants to make art a profitable part of anyone\u2019s portfolio.  My family has collected art and antiques for decades. In fact, my very first major investments were contemporary fine artworks that I purchased as a teenager. So the idea of Masterworks intrigued me.  Do I think it\u2019s a good idea for your portfolio? Let\u2019s explore\u2026  What Is Masterworks? Masterworks is an investing platform that lets you buy shares in \u201cblue-chip\u201d artworks for a fraction of their market values. \u201cBlue-chip\u201d art refers to works by household-name artists that have a history of value appreciation.  In Masterworks\u2019 case, this means art by the likes of Impressionist master Claude Monet, pop art leader Andy Warhol, and street artist Banksy.  After Masterworks has sold shares in a painting, the company hopes to sell the pieces for a substantial profit, splitting the returns among its investors.  If this model seems familiar, it\u2019s pretty much the same equity crowdfunding strategy we\u2019ve seen from real estate platforms such as Fundrise and RealtyMogul. In fact, Masterworks counts Fundrise co-founder Dan Miller among its advisors.  Masterworks has been around since only 2017 and has offices in New York City and Boulder, Colorado. The company operates a members-only gallery in NYC (more on becoming a member below).  Masterworks Offerings Masterworks seeks to offer what it deems \u201cblue-chip\u201d art. Keep in mind that art is very subjective, and your definition may vary. How Does Masterworks Work? Masterworks\u2019 business is fairly easy to comprehend.  First, the company combs through a database of more than 1 million art auction records to select artists whose works have proven track records. The Masterworks research team considers these questions:  Is the artist collected on a global scale? What is the average appreciation rate of the artist\u2019s works? (Masterworks looks for historical appreciation rates between 9% and 15%.) Is there sufficient global demand for works by the artist? What is the volatility or risk of collecting pieces by this artist? Masterworks\u2019 research team determines what makes an \u201cideal\u201d piece by each artist. An ideal piece has the particular characteristics that define an artist\u2019s work in the eyes of collectors.  For example, Claude Monet was known for being a master of the Impressionist school, so a Masterworks-approved Monet wouldn\u2019t consist of large, bold brushstrokes or have been completed in pencil.  Masterworks tracks down an exemplary piece by the artist that it can purchase at a below-market price. It then registers the artwork as a security with the U.S. Securities and Exchange Commission (SEC) and offers shares to the public.  The company plans to sell each artwork in five to 10 years after its initial purchase and split the proceeds among investors. However, once a potential buyer has made an offer on the artwork, a majority vote of shareholders is needed to complete the sale. Masterworks limits each shareholder to no more than 10% of the piece as a whole to keep the vote as democratic as possible.  In the meantime, Masterworks displays the artwork in its SoHo NYC gallery or in climate-controlled storage in Delaware. The gallery can be accessed only by Masterworks members.  Becoming a Masterworks Member Although you don\u2019t need to be an accredited investor to participate in Masterworks investments, you do need to become a member. This involves applying for an \u201cinvitation\u201d and scheduling a phone interview with the Masterworks team.  To start investing, you must make an initial deposit of $1,000. However, you can purchase individual shares of artwork for $20. The number of outstanding shares per artwork will vary; the SEC filing for Monet\u2019s Coup de Vent lists 343,175 shares.  Masterworks Monet Want to make some money off Monet? The potential for gains are there, but note that this is potentially a risky investment. Masterworks Fees Fees are always an important consideration for investors.  Masterworks charges two fees to its members:  An annual fee of 1.5% of your investment that counts toward storage, security, insurance, etc.; and A 20% commission on the profits if and when the artwork sells. That 20% commission represents a pretty hefty chunk out of your profit margin. In fact, the whole Masterworks pricing structure echoes the traditional \u201c2 and 20\u201d hedge fund fees that have drawn widespread criticism.  Masterworks Website Features Besides the investment listings, the Masterworks website offers some informative reports on art collecting and alternative investing in general. These articles are accessible to everyone, even if you\u2019ve not signed up as a member.  More entertaining is a widget that lets you search recent auction results by artists. I had fun playing \u201cstump the chump\u201d by looking up obscure medieval artists.  Is Masterworks Safe? Keeping your assets safe is an important part of any investment.  When you own physical art, you must ensure that it\u2019s safe from threats such as humidity, damaging light exposure, and theft. That can be costly. Back in the 1960s, an art-collecting couple paid my dad to \u201cbabysit\u201d their Renoir when they went out of town on vacation.  However, if you properly insure your piece, you can have some peace of mind that you\u2019re protecting your investment without keeping tabs on it 24\/7.  Unlike some other investments, Masterworks shares are not protected by any regulatory body such as the SEC or FINRA. This is because Masterworks isn\u2019t a registered broker-dealer or investment advisor. So how is your investment protected?  I wasn\u2019t able to get a clear answer online in the company\u2019s literature, so I spoke to a representative at Masterworks to find out.  Masterworks applies part of the 1.5% fee that members pay to insurance. European firm AXA provides the policy. In the case of loss or damage, Masterworks says it will distribute proceeds from an insurance payout among investors.  Every year, Masterworks will have the artworks appraised for fair market value (FMV). Insurance coverage will be based on the FMV. So there is the potential that \u2014 should the artwork lose value \u2014 your investment will not be fully recouped.  The Risks of Investing With Masterworks Like many alternative assets, artwork can be a risky investment.  Here\u2019s what to look out for when investing in a Masterworks offering or any art, for that matter.  Art Is Not Recession-Proof Yes, as a whole, the art market may have outperformed the S&P 500. But art is not recession-proof. From 2007 to 2009, during the Great Recession, the S&P plunged by 57%. At the same time, the art market slipped by over 27%. Now, that loss wasn\u2019t as steep as the stock market\u2019s tumble, but it still represented a sizable drop.  The Art World Is Fickle In addition, the art world is notoriously fickle. Artists who are \u201chot\u201d one day can be \u201cnot\u201d the next.  Masterworks has attempted to address this by identifying \u201cblue-chip\u201d artists whose work has consistently appreciated in value. However, I question the company\u2019s decision to include Banksy in its \u201cblue-chip\u201d definition.  You need only look to Damien Hirst for a potential parallel. Like Banksy, Hirst is a U.K.-based \u201cprovocateur\u201d who was the \u201cflavor of the week\u201d in the art world for a while. However, since 2008, his works have depreciated rapidly.  Artists who are still alive can be a particularly risky investment. After all, some of the value in a Monet lies in the fact that the artist is dead and can\u2019t paint any more pictures. Banksy, on the other hand, has plenty of time to create more work or do something unsavory that would devalue his art.  Masterworks Monet Details Masterworks uses algorithms to determine each artwork\u2019s potential. Masterworks Pros and Cons Masterworks Pros Access to Big-Name Artwork: This might be the only way you get to say you own at least an inch or two of a Monet. You Don\u2019t Have to Be Accredited: You don\u2019t need to be an accredited investor (with a net worth of more than $1 million or an annual income of more than $200,000) to partake in a Masterworks offering. Members-Only Gallery: I like the idea of being able to have up-close-and-personal time with a work of art by a master. Masterworks Cons Art Returns Aren\u2019t Guaranteed: Art can still depreciate for a number of reasons. There\u2019s also no guarantee that the art you\u2019re invested in will sell. Assets Are Illiquid: Currently, investors must hold shares for an estimated five to 10 years until the artwork is sold. There\u2019s no secondary market for selling shares if you want to divest your position. (However, Masterworks indicated that this might be in the works.) $1,000 Minimum Investment: Masterworks shouldn\u2019t be a major part of your investment portfolio; therefore, a $1,000 minimum investment may be too large for some investors. Membership Application Process: To become a member, you must complete an application process that includes a telephone interview. I\u2019m a bit phone-shy, so this puts me off. 20% Commission: Masterworks will take a 20% commission out of your profits if and when an artwork sells. That\u2019s a bit hefty. Who Is Masterworks Best For? Masterworks is best for art fans who would get a kick out of the business model. It might be a fun investment if you like the idea of owning a little piece of a specific artwork that you like by and artist you admire.  For example, if you really love Monet, here\u2019s your chance to own a few of his dabbly brushstrokes. And as a plus, you might make some money on your investment.  However, with the potential for plenty of risk, I wouldn\u2019t recommend that you invest any money into Masterworks that you couldn\u2019t stand to lose. There are safer investments out there \u2014 including income-producing bonds, ETFs, and even real estate.  Especially if you\u2019re investing for retirement, high-risk investments such as art shouldn\u2019t be a serious consideration unless you have experience and understand how the art market works.  In addition, for many art lovers, part of the fun of collecting is getting to enjoy the works themselves. Unless you live in New York City, you can\u2019t easily go visit the Monet you own a bit of.  You may have read that successfully investing in art isn\u2019t possible unless you\u2019re a millionaire. I know from experience that this isn\u2019t true. If you\u2019re an art fan and are willing to do your due diligence and research, you don\u2019t need $1 million to exceed annual returns of 10%.  Go to art and antique shows, galleries, and even thrift stores and flea markets (you never know \u2014 I\u2019ve made some great finds there!). You may not be able to find a blue-chip artist like Warhol or Monet, but you may be able to find fine art that will realize a considerable return.  Here\u2019s an age-old rule for investing in art: Buy what you like and what gives you pleasure to own. When it comes time to sell, consider any value appreciation a happy bonus.  Find our more about Masterworks membership here.","description":"Masterworks is an investing platform that lets you buy shares in \u201cblue-chip\u201d artworks for a fraction of their market values. \u201cBlue-chip\u201d art refers to works by household-name artists that have a history of value appreciation.","name":"Masterworks Review Article","dateModified":"2020-06-12","datePublished":"2020-01-31","headline":"Masterworks Review 2020: Should You Invest in Art?","image":"https:\/\/moneydoneright.com\/wp-content\/uploads\/2019\/11\/masterworks-review.jpg","author":{"@type":"Person","url":"https:\/\/moneydoneright.com\/author\/katherine-peach\/","name":"Katherine Peach","description":"Katherine Peach is the former managing editor of Money Done Right.  She has more than 12 years of experience in the financial industry. She particularly enjoys writing about stocks and the markets, as well as investing in art and antiques.  Experience Katherine didn\u2019t always intend to write about money. She\u2019s a classically trained pianist who graduated from university with a degree in archaeology and ancient Greek and Latin. However, in 2007 she began working in financial publishing as an editor for Agora Inc. (Apparently, unearthing ideas about improving your personal finances isn\u2019t such a bad career alternative!)  Since then, her writing has been featured in Truth & Plenty, Independence Monthly, NICHE, AmericanStyle, AntiqueWeek, InvestorJunkie.com, TheStreet.com, Sure Dividend, and many others.  Personal Katherine lives in Baltimore, Maryland, where she and her husband own an independent record store.  She also enjoys spending time in the woods, recording and composing music, and goofing off with her three kids.","sameAs":"https:\/\/www.linkedin.com\/in\/katherine-peach\/","familyName":"Peach","givenName":"Katherine","gender":"Female","@id":"https:\/\/moneydoneright.com\/masterworks-review\/#Person"},"publisher":{"@type":"Organization","logo":{"@type":"ImageObject","url":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Money-Done-Right-Personal-Finance-and-Investing-Blog.png","name":"Money Done Right Logo","height":"488","width":"60","@id":"https:\/\/moneydoneright.com\/#ImageObject"},"address":{"@type":"PostalAddress","name":"Money Done Right Address","addressCountry":"United States","addressLocality":"Valencia","addressRegion":"California","postalCode":"91354","streetAddress":"23890 Copper Hill Dr Ste 139","@id":"https:\/\/moneydoneright.com\/#PostalAddress"},"url":"https:\/\/moneydoneright.com\/","publishingPrinciples":"https:\/\/moneydoneright.com\/methodology\/","additionalType":"Blog","name":"Money Done Right","email":"support@moneydoneright.com","sameAs":["https:\/\/twitter.com\/moneydoneright","https:\/\/www.facebook.com\/moneydoneright\/","https:\/\/www.instagram.com\/moneydoneright\/","https:\/\/www.linkedin.com\/company\/money-done-right\/","https:\/\/www.pinterest.com\/moneydoneright\/","https:\/\/www.youtube.com\/c\/MoneyDoneRight"],"foundingLocation":"https:\/\/en.wikipedia.org\/wiki\/Santa_Clarita,_California","legalName":"Allec Media LLC","naics":"519130","parentOrganization":"https:\/\/moneydoneright.com\/#ParentOrganization","founder":"https:\/\/moneydoneright.com\/author\/logan-allec\/","@id":"https:\/\/moneydoneright.com\/#Organization"},"mainEntityOfPage":"https:\/\/moneydoneright.com\/masterworks-review\/","@id":"https:\/\/moneydoneright.com\/masterworks-review\/#Article"},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"Passive Income","item":"https:\/\/moneydoneright.com\/passive-income\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"Other Ideas","item":"https:\/\/moneydoneright.com\/passive-income\/\/other-ideas\/#breadcrumbitem"},{"@type":"ListItem","position":3,"name":"Masterworks Review","item":"https:\/\/moneydoneright.com\/passive-income\/other-ideas\/masterworks-review\/#breadcrumbitem"}]}]