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The high-end art market has been traditionally dominated by super-rich buyers with piles of dispensable cash and easy access to auctions and private sales. For ordinary people, even dreaming about breaking into this exclusive world can feel out of reach.
But with its strong appreciation potential even during inflationary periods, fine art is no longer a prized family possession passed through generations. When judiciously used, it can yield consistently high returns and help you build a resilient investment portfolio.
Case in point – Masterworks, a mobile-friendly art investment platform, paid out returns worth $25 million to its user base in 2022. Keep in mind that it was a year marked by geopolitical conflicts, mass layoffs, and the looming threat of a recession.
High annual returns are only part of the reason why the Masterworks app has attracted a community of 811,000 users. The company is using several innovations, from fractional investing and peer-to-peer trading to data-driven decision-making, to change the public’s perception of fine art investments.
Let’s dig deeper and find out how Masterworks is doing that.
Easy Accessibility Through Fractional Ownership
One of the primary factors that drives retail investors away from the high-end art landscape is the steep price point. However, with Masterworks, you can invest in the works of acclaimed artists like Andy Warhol and Picasso for as little as $20.
If you’re wondering how that’s even possible, the answer is fractional investing. After carefully screening and purchasing a painting, Masterworks files an offering circular with the SEC. Once securitized, the painting is open for the public to invest in. Instead of purchasing a multi-million dollar painting in one go, you can purchase fractional shares of the underlying artwork.
That makes art investing feasible for practically anyone. You can enjoy the benefits of high-end art investments without worrying about spending a lot. Plus, with shares starting at $20, you have the flexibility to invest in paintings by different artists. It’s a clever way to diversify your portfolio and maximize returns.
Data-Driven Acquisitions and Exit Decisions
Identifying artwork with strong appreciation potential requires a thorough understanding of how market dynamics work. Unfortunately, most people lack insight into the enigmatic world of blue-chip art.
Even if you invest in a painting by an in-demand artist, there’s no guarantee that their name will attract high prices in the future. Artist reputations can tank, and buyer preferences evolve.
In such a scenario, how do you know which painting will yield the maximum value for money? Masterworks simplifies the process with insights from their proprietary database of auction sales records.
The research and acquisition teams use historical data to understand how the works of different artists have performed over time. It helps them identify artist markets and painting styles with the maximum momentum for investing. Additionally, they use machine learning algorithms to assess future performance and returns in these markets.
With access to these data-backed insights, it becomes easier to make calculated decisions when selecting paintings. It’s worth noting the acquisition team purchases less than 5% of the pieces on offer. Similarly, the company uses data to harness high-yield exit opportunities. While the usual holding period for a painting is three to ten years, at times, quick exits can generate higher returns.
For instance, a Simone Leigh piece resulted in an eye-popping 325% annualized gain after a 36-day hold. Acquisition and private sales experts constantly monitor the market to understand demand and supply trends and identify the best resale opportunities.
With the powerful combination of historical data and modern technology, Masterworks is eliminating the dependence on guesswork and personal taste. That, in turn, is leading the way for a standardized approach to purchasing and reselling fine art.
Maintaining Liquidity Through Peer-to-Peer Trading
Million-dollar pricing isn’t the only barrier to entry in the high-end art market. Even if you can afford the luxury of purchasing a Picasso or Van Gogh, negotiating a resale can be cumbersome.
The general perception is that fine art is an illiquid asset class. Finding buyers whose tastes and views align with yours is difficult. And if you’re lucky enough to resell via art galleries or auction houses, prepare to pay a fortune for cataloging, marketing, packaging, and shipping.
Masterworks addresses the challenge of illiquidity with their secondary market, where members can sell their shares of a painting. In other words, converting your fine art investments into cash (or any other asset) becomes as straightforward as stock trading.
After selling your shares on Masterworks’s secondary market, you can use the cash to invest in a piece by another artist on the platform. Alternatively, you can allocate the funds to another high-yield asset class. It’s the kind of flexibility you need to build a diversified portfolio.
Invest in Blue-Chip Art With Confidence
Masterworks’s unique approach to fine art investments is opening up the market to a wider audience. While the use of data and machine learning helps select the right artist markets, the fractional ownership model minimizes the pocket pinch. Then there’s the in-built trading platform, which helps keep your investments nearly as liquid as stocks.
With a 45% average annualized return from 16 exits to date, Masterworks’s fractional investment model looks promising. However, it’s worth remembering that past performance doesn’t always guarantee future returns. Do your own research and understand your financial goals to determine whether blue-chip art is a wise investment choice for you.