Investing in Fine Art with Masterworks

For intelligent investors and collectors, fine art may be more than just something to appreciate at a gallery or museum; it can also be a valuable asset class. This is best illustrated by a new generation of millennials, who are among the savviest art investors.

According to recent research, millennials account for 17% of investors who spend $1 million or more on a work of art. They are more prone than any other generation to regard art as a financial asset and part of a broader investment strategy.

Art provides many unique benefits and multi-faceted worth, in addition to being easily accessible. It's an asset that you can relate to as well as consume and enjoy; it makes a statement by bringing a sense of wealth and grandeur to any location it's presented in. It also has a high social value, stimulating discussion and fostering dialogue.

Investing In The Art Market

Art, like securities and bonds, can appreciate in value. If an aspiring artist has a successful career, the worth of their work will rise. A long-term holding period is required to realize a return on art investments.

Those interested in investing in art can do so through traditional channels such as art fairs, galleries, auctions, and individual dealers. There are also more modern methods, such as online marketplaces like Artsy and fractional ownership platforms.

The fractional ownership option is ideal for investors looking to participate in the art market, which is analogous to the stock market.

Masterworks can be an excellent alternative for consumers who want to invest in blue-chip art but cannot afford to buy the full piece. This fractional ownership model enables investors to invest in the art market in the same way that they would in the stock market.

Begin Your Investment Journey With Masterworks

Now that you are more familiar with the benefits of investing in art, it makes sense to find out more about how to go about building a proper art portfolio. This will be an asset that you can appreciate right now and potentially profit from in the future.

Investing in multimillion-dollar paintings used to need a significant amount of capital. Masterworks, a privately held startup, wants to change that.

Masterworks specializes in instilling the highest level of trust in the art market and in art investments. If you want to start your art investment adventure, contact their specialist art advisors for the most professional art investment advice.

You'll be able to do the following using Masterworks:

● Diversify your holdings.

● Invest in high-quality artwork.

● Profits range from 8% to 30%+.

● Take measures against inflation.

● Take measures against stock market volatility.

What is Masterworks?

Masterworks is the first and premier firm for buying and trading shares in multimillion-dollar, blue-chip artworks, with over 215 employees based in New York City. We are the only platform where you can buy multi-million dollar works of art by artists like Basquiat, Picasso, and Banksy.

Masterworks is a one-of-a-kind organization that allows investors to buy fractional shares of fine artworks. While investing in art shares is an attractive concept, investing in fine art carries some risk. Masterworks may be a great place to start for investors wishing to diversify into fine art with a limited initial investment.

You do not own or store the artwork with Masterworks. Instead, you and several other investors buy shares in high value works that have been authenticated by specialists.

The company provides a simple investment product that is easy to grasp and makes it easier for investors to invest in the kinds of art that were previously only accessible to very wealthy investors.

Despite the fact that Masterworks was only established in 2017, they assure investors that the assets are handled with the utmost care and are covered by insurance in case of damage or loss.

Scott Lynn, Masterworks' founder, and CEO founded the company after observing the value of his personal art collection rise and feeling that it should be accessible to all types of investors. More than 250,000 investors are currently using the Masterworks platform to diversify their portfolios.

Users can purchase (and sell) shares in what the firm refers to as "blue-chip" art, which includes works by Pablo Picasso, Claude Monet, Andy Warhol, Banksy, Kaws, Jean-Michel Basquiat, and others.

How Masterworks Works

Masterworks offers a cost-effective option for purchasing fine art. Formerly only available to wealthy investors, this option is now open to all sorts of investors.

Masterworks focuses on buying modern art that has qualities that make it a good investment. The research team uses data analytics built on top of its proprietary database to identify the artists.

The paintings by those artists are then sought out by our acquisitions team, a group with decades of transaction and due diligence experience in the art market. Masterworks maintains a buy-and-hold strategy and only sells to maximize investor returns.

Masterworks will buy a painting and file it with the SEC as an initial public offering, or IPO, in the same way that a company goes public. Shares of the artwork are then auctioned for as little as $20 per share on the Masterworks website. One new painting is issued every four to five days, according to the firm.

The platform is notable for its use of proprietary data to evaluate which artist markets have the most traction. According to the company, their research team focuses on the very high-end portion of the art market that provides consistent returns. Meanwhile, its research staff is calculating appreciation rates, correlation rates, and loss rates in the background.

Masterworks has also just launched a secondary market for investors to trade shares in paintings. Furthermore, through its relationship with Alto IRA, an alternative asset investing platform, Masterworks allows you to invest your IRA earnings in its exquisite art.

What is Fine Art?

There is some dispute about the precise concept of fine art. Fine art, according to one definition, is art done exclusively for aesthetic or intellectual value rather than a functional purpose and encompasses creative expression that may or may not be attractive.

Fine art, by another definition, is the use of creativity and artistic skill to produce anything for aesthetic purposes. Recall that art is frequently done on commission, so this can get tricky.

Artists have traditionally made work for wealthy customers. But, nowadays, an art gallery will pay to commission a show from one of their artists. The company then invests significant amounts in publicizing the show in order to generate sales.

Few would contest that the Sistine Chapel ceiling, which was produced on commission, isn't a work of exquisite art. Moreover, remember that the term "fine" does not imply that the work of art is of a high caliber. It alludes to the integrity of the subject matter, such as in sculpture, painting, and drawing.

Why Invest in Fine Art

A sense of personal fulfillment and the financial gain from an artwork's value over time are the two main advantages of investing in fine art. Collectors can also view and enjoy their purchases on a daily basis, which stock and bond investors do not have.

As a financial investment, good art frequently outperforms traditional economic indicators such as inflation or stock market indices. Although art investments sometimes appreciate slowly in value, they do not lose value as frequently as their traditional equities equivalents.

In addition, unlike more standard investments, there is no art investment equivalent to a firm going bankrupt. The output of an artist may be consistent or erratic, but it becomes finite upon death or retirement, frequently leading to large rises in value.

Another significant distinction between investing in art and traditional investing is the period of the investment. Stocks or bonds held for more than a year are considered long-term investments.

Artwork, on the other hand, is more typically held for decades before being sold. The art sector, like traditional investing, has its share of swindlers and con artists; investors in both fields should extensively study their acquisitions, employing professional assistance, if necessary, to assure their legitimacy.

Several Art Forms You Might Invest In

Depending on the popularity of an artwork or artist, practically anything may be considered an investment. Here are a few examples:

● Paintings: When it comes to investing in art, paintings are typically the first thing that comes to mind. Included are works on a two-dimensional medium, such as canvas, that use paints such as oil or acrylic.

A good example is Pablo Picasso's 1932 work Femme nue couchée, which sold for $76.5 million in 2022.

● Photographs: Photos are another type of art to consider investing in. Ansel Adams' 1942 photograph sold for $988,000 at an auction in 2020. The photograph was one of 115 by Adams that sold for a total of $6.4 million.

● Street Art: Since the 1980s, when graffiti was prevalent, street art has risen in popularity. This type of art is frequently associated with social activism and comprises stickers, murals, installations, and stenciled pictures created in public places.

Girl with Balloon, the most renowned work by British graffiti artist Banksy, sold for $1.4 million in 2018. Shortly after, the artist attempted to destroy the work of art. The semi-shredded version (now titled Love is in the Bin) sold for $25 million three years later.

● Non-Fungible Tokens (NFTs): The most recent form of art to enter the market with the rise of digital assets is NFTs, a type of crypto art. With an NFT, you can own a cool piece of digital art in the form of music, video, or pictures.

● Other Contemporary Art: Contemporary art genres include sculptures, silkscreen prints, installations, video art, performances, and more.

Very Little Correlation with Traditional Markets

When considering diversification strategies to hedge against inflation, investing in an asset with a low correlation to volatility in traditional bond and stock markets, which can be common during high inflationary periods, can be beneficial.

While constructing an investing portfolio, market risk is always a factor to consider. Even index funds may not be completely safe because they are connected to the performance of the stock market.

Yet, there is very little correlation between the artwork and any stock index or market. Buying art acts as a store of wealth that is separate from traditional asset movements. According to a CitiBank study published in 2022, the correlation between blue-chip art and all other asset classes is weakly positive or close to zero.

 Art Performs in High Inflationary Periods

Inflation in the United States has risen to a 15-year high as interest rates have hit their highest level since October 2007. To combat growing inflation, the Federal Reserve raised interest rates to a range of 4.75% to 5.00% as of March 22, 2023. The Fed hiked interest rates by 0.25% on March 22, the ninth increase since the Fed began hiking rates last March.

According to a recent statement, the Fed's primary goal is to return inflation to its 2% target. Despite having dropped from its peak of 9.1% in the summer of 2022, however, inflation remains high.

Practically every sector of the global economy has been impacted by declining purchasing power, from rent and fuel to food and clothing. This is, of course, because of the geopolitical chaos caused by the post-Covid lockdowns and war. Russia's invasion of Ukraine has raised costs for everything from oil to wheat, contributing to global inflationary pressures.

To make matters worse, when inflation is high, markets tend to be more volatile. Consequently, if you have any money invested in the stock market, you are probably underwhelmed with its performance.

The best strategy to preserve the value of your money in these trying times is to hedge it against an asset that is unrelated to interest rates or stock markets, like fine art. Although it might seem logical that this would also have an effect on the art market, excessive inflation has not yet had a negative impact on it.

In fact, many contemporary art auction records were broken in 2022, and auction houses continue to report excellent sell-through rates. According to a recent report, the art market has seen total sales of $5.7 billion this year. And we’re not even halfway through 2023!

Why Should You Invest in Art?

There are numerous reasons why investing in art might be beneficial. In fact, any of these can stand alone as a compelling incentive to make a purchase and begin your art investment adventure. But, when you consider them all together, it is evident that investing in fine art might be a wise decision.

It’s an Accessible Market

It wasn't long ago that the fine art market was thought to be exclusive to a limited group of individuals. Specifically, individuals who like accredited investors already had a considerable amount of capital, to begin with.

In many ways, the online world has facilitated this transformation by providing access to a diverse selection of artworks at a number of price points and simplifying the process of locating competent art investment consultants. There are also a variety of flexible payment options, making artwork more accessible than ever.

This is where alternative investing platforms, such as Masterworks, which sells shares in fine art, really shine. Masterworks make it reasonably simple for investors to invest in modern artwork by well-known artists such as Banksy and Jean-Michel Basquiat. But more on that in a moment.

Investors Can Resonate With Fine Art

Unlike most other forms of investment, art may resonate with you and develop a strong emotional connection with you. In reality, one of the most significant criteria in art investment is responding to and liking the piece in which you invest.

Nothing beats combining your passion for a particular piece of art or collection with informed decisions based on study and expert advice. When you invest in fine art, you will have the added benefit of possessing an asset with which you can resonate, and you will create an even stronger relationship with it over time. This will help ensure that every penny you spend is a sound investment.

Its Valuation Is Multi-Faceted

Art has far more to offer than monetary worth. It is also of aesthetic, emotional, intellectual, cultural, and social importance. Displaying your art collection provides an additional sense of reward and fulfillment. You may enjoy the various benefits and values of your investment portfolio wherever you are, whether at home or at work.

One of the primary advantages of art as a multifaceted investment is that it is considerably easier to sell if you decide to part with it in the future. This is because the same values that appealed to you will also appeal to other collectors.

Great Art Is Consumed and Enjoyed

Unlike other sorts of investments, art can be consumed and enjoyed without diminishing in value. You can take advantage of all of its advantages and benefits without fear of the financial value decreasing as a result.

Compare this to other forms of investment, like whisky, which loses value with even the smallest quantity of usage.

If you decide to part ways with your collection after many years of appreciating it, it will retain its worth, allowing the new owner to consume and enjoy it as much as you did. In reality, there's a high possibility your collection will be worth more than you paid for it. It's the ultimate win-win situation!

Fine Art Makes an Impact

Fine art will without a doubt offer a feeling of elegance and distinction to any room in which it is displayed, leaving an impression and implying prestige to its owner.

The power of art is often projected, and the room is often designed around a piece of art or collection by interior designers. Art is a special artifact because it has the ability to influence the mood and ambiance of the space in which it is placed.

Also, you don't need to be sitting on a significant amount of money to create an impression with an art collection and bring a strong sense of elegance and distinction to your space because investment-worthy art is accessible that meets all budgets.

Art Provides Social Value

Art is the ideal medium for sparking conversation and fostering dialogue with your visitors or clients since it may be evocative, have a narrative, offer a sense of escape, pique curiosity, and stimulate interest while also stimulating both imagination and intellect.

The social commentary that can be seen or made utilizing art as a platform for expression is another of the social values connected to art in general and specifically with art ownership.

Helps Diversify Your Investment Portfolio

Art is a critical component of a well-diversified investment portfolio and should never be seen solely as an alternative type of investment, especially when the long-term goal is to retain revenues while increasing capital.

Similarly, if you only want an art collection in your investment portfolio, that is a viable approach to invest and set yourself up for future earnings. Art is a relatively simple asset to grasp and is found in the portfolios of most successful investors.

Fine Art Can Be a Stable Asset Class

There is always a market for art, and it has continuously withstood the storms of unpredictability and instability in other markets, demonstrating its durability.

Long-term data study reveals that when compared to any other asset class, art has the closest correlation to gold, making it a particularly successful investment choice for preserving the value of your current wealth while also providing the possibility for future profit.

Art Regularly Performs Better Than Stocks

Art consistently beats stocks and shares as an asset that benefits from ongoing market expansion, and while the stock market frequently rises and falls, the art market has consistently shown its stability, as noted above.

During the past 25 years, investments in contemporary art have outpaced those in the S&P 500. According to the Citi Global Art Market chart, which was cited by the fine art investment firm Masterworks, contemporary art has provided an annual return of 14% over the past 25 years as an asset class, compared to an annual return of 9.5% from the S&P 500.

Effective Hedge Against Inflation

Historically, art has been an asset that has been mostly unaffected by inflation, currency depreciation, or market volatility, resulting in a significant reduction in risk for investors.

To be sure, any type of investment involves some risk, and art is no exception. That being said, the fact that art acts as a hedge against inflation is a compelling argument to view it as an asset and then perform some art market research.

How to Sign Up for Masterworks

Unlike several alternative investment platforms, Masterworks does not require you to be an accredited investor to get started. You must instead request an invitation and become a member, which involves a phone interview.

That's right, you'd think a firm as forward-thinking as Masterworks would allow you to sign up entirely online. But you would be wrong. To join, you must make an actual phone call with a human. Imagine that!

See, we believe it is critical to establish a one-on-one relationship with each and every client. You may also use the Masterworks interview to ask any extra questions you may have and to go through your objectives.

The Masterworks Process

Here’s a quick rundown of the steps involved in our fine arts investment program:

1. Acquisition of artwork: Masterworks purchases artwork from a roster of artists chosen by algorithms. It selects outstanding artists with established histories of appreciation using data from over 1 million art auctions. Masterworks focuses on artworks with a historical annual return of 9% to 39%.
   
   

2. The Artwork is Securitized: Masterworks registers the art with the SEC and issues shares in $20 increments after purchasing it. Individual investors are not permitted to own more than 10% of any given work.
   
   

3. Holding Period (3-10 yrs): Masterworks owns the artwork and may display it in its New York City members-only gallery.
   
   

4. Sell Your Shares on the Trading Market: In general, Masterworks expects to sell the majority of the artworks in three to ten years. Our private sales team, which operates out of a separate gallery space, works with the best collectors in the art market to sell pieces directly to them.
   
   

5. Share Profits: When the artwork is sold, the proceeds are split among the investors. Wait until we sell the artwork before receiving your pro rata share of the revenue, less our expenses.

You can sell on the Masterworks secondary market if you wish to get out early. You can also acquire shares in an artwork that is being sold on the secondary market and can be viewed on their website. It should be noted that the secondary market is only open to investors in the United States.

Risks and Considerations

Acquiring a piece of classic art for a reasonable price can be very appealing, but keep in mind that investing in art is a multi-year commitment. You must be willing to leave your money locked up for several years – or maybe lose it.

Consumers should consider Masterworks' artworks to be long-term investments. This is why the corporation does not allow anyone beyond the age of 70 to utilize the platform. Investors must wait until Masterworks sells the painting before they may receive a profit.

Instead, the investor could try to sell their Masterworks art shares on the secondary market before the company sells the painting.

While Masterworks' business model focuses on renowned artists and works with a proven track record, keep in mind that art, like any investment, is risky. Consumer tastes change, and artists and works of art come and go, altering the market value of the artworks. Although Masterworks pre-screen artists and artworks, the art industry as a whole is far less regulated than the stock market.

Before you enter the world of art investment, be sure you have accomplished essential financial goals such as paying off high-interest credit card debt, establishing an emergency fund, and establishing a 401(k) or IRA to which you contribute on a regular basis.

Strong Performance and a Promising Future

Masterworks is a relatively new company, having been in operation for only five years. As a result, determining a precise historical performance is difficult. Having said that, Masterworks has acquired 150+ assets for over $650 million and has seen net returns of over 17% on seven of its eight exits.

The fact that there are a few exits makes the data less accurate, yet this is still a promising rate of return.

Art can also be very subjective, making some works more difficult to appraise. A broad portfolio, such as stocks, bonds, and other investments, can help you manage risk. Nonetheless, we believe that investments in alternatives like artwork should make up a tiny portion of your entire portfolio.

Fees for Masterworks and How to Get Started

Masterworks investors must meet a minimum investment requirement based on the piece of art they are investing in.

Masterworks charge a 1.5% annual maintenance fee, plus 20% of any proceeds from the sale of an artwork. The offering documentation that investors receive includes a list of any additional fees that might be relevant.

When compared to investing in something like a market-tracking index fund, these fees are somewhat high even though the management charge and 20% of the profits fee are in line with the industry standard for hedge funds. Nonetheless, fine art, like most alternative investments with high costs and increased risk, might possibly yield higher returns than typical investment vehicles.

Once an investor's account is activated, they can select particular paintings to invest in; however, this may take some time because the company is currently on a waitlist.

To create an account, go to the Masterworks website and submit a membership application. This requires, as previously noted, a phone conversation with the company's membership staff to discuss your objectives for investing in works of art and your risk tolerance.

Get in touch with Masterworks today to examine this accredited investor opportunity!