In recent years, we have seen the emergence of online platforms which are now competing with the traditional method of investing in art. The most popular of these platforms is Masterworks, which allows investors to purchase fractional shares in multi-million dollar artworks. In this article, I want to compare investing in via Masterworks vs. traditional methods like buying physical artworks. My aim is not to sway you one way or the other (in fact, investing via Masterworks and the traditional method at the same time is a fine idea in my opinion), rather I simply want to highlight the pros and cons of each approach.
Masterworks: Democratizing Art Investing?
Masterworks is an online platform that enables investors to buy shares in blue-chip artworks that would typically be out of reach for the average investor. By pooling the resources of everyday investors, Masterworks can grant access to the potential returns of the blue chip art market without requiring them to purchase an entire artwork.
Pros of Masterworks:
- Diversification: Investing in artwork via fractional shares means you can spread your funds across multiple artworks because the entry point is so low for each share (starting from US$20). For example, you could take the $5,000 you might spend on one Damien Hirst print, and spread that across 5 or more different artworks on Masterworks. This helps reduce the risk of investing in a single artwork.
- Liquidity: Investing via Masterworks can help improve the liquidity issue of investing in art. The secondary marketplace on the platform allows you to sell your shares to other members whenever you want, which is a flexibility not typically found in traditional art investing. Bear in mind, I believe that the secondary marketplace is still only available for US-based investors at the moment.
- Expert Curation: Masterworks has a team of professionals whose only job it is is to select the artworks for investment. Unless you think you can pick better or on par with these professionals, Masterworks might be your best option for art investing.
Cons of Masterworks:
- Lack of Physical Ownership: Investing through Masterworks means not having physical possession of the artwork. For some, the enjoyment of owning and living with a physical piece of art is an integral part of the investment experience, which I find hard to disagree with.
- Fees and Costs: Masterworks charges an annual 1.5% management fee (charged when an artwork sells), which can eat into potential returns. If it makes you feel any better, the fees help pay for the climate controlled storage of the artworks as well as some administration costs.
Traditional Method: Physical is Better?
Investing in physical artworks has long been the traditional method of art investment. This approach involves purchasing an artwork outright and either enjoying it by displaying it in your home or storing it securely.
Pros of Owning Physical Artworks:
- Tangible Ownership: Owning a physical artwork allows for the enjoyment of it in your home or private collection. An added bonus of this method is that even if the artwork does not appreciate in dollar terms, it can gain sentimental value which is a type of appreciate in some sense (I’m looking on the bright side with this proposition).
Cons of Owning Physical Artworks:
- High Entry Costs: There are some artists whose artwork you might love who are simply going to be too costly for you to invest in. Even prints from Blue Chip artists like Jean Michel-Basquiat, Yayoi Kusama, Keith Haring can start at US$30,000+, which is simply too much money to put into one artwork for most art collectors. If these are the type of artists you are interested in, Masterworks would be best for you.
- Illiquidity: When it comes time for you to sell an artwork or your entire collection, you will likely have to consign it to an auction house, whose schedule might not line up exactly with when you want to cash out. Although, most auction houses will have monthly auctions, so this is not the biggest deal unless you are trying to sell artworks that are not popular in your city/ country.
- Storage and Maintenance: Physical artworks can require the right environmental conditions so that they remain in the best condition possible. If you live in a place that is humid or receives to much direct sunlight, owning physical artworks might not be appropriate.
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We welcome you to Contact Us with any questions you have about investing in art. Let us know your budget, the kinds of art that interest you, and we can work out a plan to get you started with art collecting the right way.