Art is Among the Smarter Investments You Can Make. Here’s How to Own a Piece of Warhol (Without Having Millions)
There’s an old saying: Don’t put all your eggs in one basket.
That’s especially true when it comes to investing. It’s always smart to diversify your investments. We’ve recently seen how volatile the stock market can be, with stock prices whizzing up and down like a roller coaster.
When you spread your money around, you reduce your risk in case one of your investments takes a downturn. That’s why savvy pros invest in stocks and bonds and exchange-traded funds and real estate.
Really well-heeled investors have another option that’s not available to most of us: They invest in art. It can be quite profitable, regularly outperforming the stock market. But it’s been out of reach for normal people like you and me — until now.
A company called Masterworks is making investing in artwork accessible for regular folks like us. If you’re looking to diversify your investments beyond the stock market, this is a good way to get started.
Masterworks is the first company that lets you buy shares of incredibly valuable masterpieces from geniuses like KAWS, Basquiat and Banksy — and you don’t need to be rich to do it.
Investing in Blue-Chip Art Can Bring High Returns
Let’s compare the rate of return. Over the long term, investing in the stock market will get you an average annual return of 7%, adjusted for inflation, according to a number of studies.
Fine art, on the other hand, can yield much greater returns, because pieces appreciate over time. Masterworks only buys artwork by established artists who have historically demonstrated a 10% to 25% price appreciation. In other words, it only buys “blue-chip” paintings — artwork that’s expected to keep rising in value over time, regardless of how the overall economy is doing.
The world of art investing is different from other investment markets, so it typically won’t suffer from the type of volatility we’ve recently seen in the stock market’s sudden scary plunges.
For example, the S&P 500 is a stock market index that tracks the stocks of 500 large American companies. According to Artprice, a leader in art market information, the value of blue-chip artwork has outperformed the S&P 500 by over 250% from 2000 to 2018.
Even more, during the financial crisis of ’08 and ’09, the S&P 500 dropped 58%. Meanwhile, fine art prices only declined 26%.
How You Could Invest in a Warhol (Without Being Rich)
Masterworks hand-picks the pieces it buys and resells by using auction records to select works from top-performing artists with favorable appreciation and risk profiles.
Previously, it’s bought and resold works by Pablo Picasso, Claude Monet, Banksy, Andy Warhol, Jean-Michel Basquiat, Alex Katz and Jonas Wood.
You can invest in a painting by buying a share, and you can get started with a $5,000 investment.
You Can Get Started Quickly
Masterworks buys artwork from auction houses, galleries, art dealers and private collectors. It expects to hold onto works for three to seven years before reselling them. (Fun fact: When the pieces aren’t on display at its SoHo, New York, gallery, they’re held in a fully secure and climate-controlled space in Delaware.)
It charges an annual fee of 1.5% to cover expenses like storage, security and insurance. Then when the art sells, the profits are divided among the investors, and that’s when you get your cut. Masterworks takes 20% of any gains above the initial public offering price — so the company has skin in the game.
To get started, just request an invitation to become a member. It takes a few minutes.
First, you’ll be asked how much you’d consider investing in blue-chip artwork in the next 12 months. Once you type in an amount, Masterworks will estimate your possible returns over the next seven years.
When I entered $10,000, the site told me I could expect to earn $25,022.69 over seven years.
Then you’ll be asked to schedule a phone call with a Masterworks representative. These calls are scheduled to last 15 minutes. I made an appointment for later the same day.
On my call, I spoke with Alberto Simon, a co-founder of the company and its Head of Product. He gave friendly and thorough answers to all my questions about how the company and its investments work. (I had a lot of questions.)
If I’d really had $5,000 to invest, I could have started investing the same day. (Alas, I am only a writer, so I don’t really have $5,000 to invest. But you might.)
Want to Sell Your Shares Early? No Problem
I know what you’re thinking: If Masterworks typically keeps artwork for three to seven years before reselling it, what if you want to cash out before then? What if you own shares in a painting but you don’t want to wait until it gets sold?
It turns out this isn’t a problem. On its website, Masterworks has a “secondary market” where investors can buy and sell shares in paintings amongst themselves. So if you’re looking to sell your shares in a painting, you can list them for sale there. This option makes your investment more “liquid,” so you don’t necessarily have to wait years to see a return.
This secondary market is set up in a “bulletin board” style, like other online marketplaces. You can list your shares for sale at whatever price you deem suitable. Buyers scan all the offerings. If they’re interested in buying your shares, they can pay your price or make a counteroffer.
Simon, the Masterworks rep I spoke with, confirmed for me that investors are earning returns by selling their shares this way. This feature is one of the things that makes Masterworks unique.
If you’re interested in investing in art, now’s your chance to further diversify your investments and finally put some of your eggs in another basket!
Sure, you could wait and see if you stumble across a priceless piece of art hidden in Grandpa’s attic, but unfortunately that’s not likely. Plus, this is a bit easier — it only takes a few minutes to start investing in fine art like the super-wealthy.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.
See important disclaimer: masterworks.io/disclaimer