Jay Z famously raps about art growing his net worth via fine art in the famous lines:
“I bought some artwork for one million
Two years later, that shit worth two million
Few years later, that shit worth eight million”
Popularized in common culture, the concept of investing in rare assets that the public does not have access to — such as art — lends itself as a novel concept. We have all dreamed of owning the racehorse that wins the derby, the classic Picasso hanging on the mantle or the 1 of 50 Ferrari’s made. These assets are known to outpace the market for decades on end. This platform makes one of those options accessible to the average investor for just $20.
Let’s take another example: a recent sale of a previously unknown Da Vinci painting that hung in a plantation-style home in Baton Rouge. It recently sold for $450 million. This was originally purchased for roughly $120 USD in 1958. Now that is compound interest.
What does this mean for you as a retirement investor and your retirement portfolio? There are potential returns uncorrelated to public markets and other assets that investors can potentially take advantage of!
With Masterworks.io, you can buy stock in the artwork. Even though I am usually not a big proponent of Regulation C, which I highlight here in Why You Should Avoid Seed Investing and Regulation Crowdfunding (Regulation CF). The Masterworks opportunity seems a bit different as I will outline shortly.
What is Masterworks.io?
Masterworks is an NYC based company that is the first to market in crowd investing for fine art. Ever fancy yourself owning an Andy Warhol? Well, this platform lets you buy shares in it.
“Artwork made by some of the world’s most significant artists tends to appreciate at the highest rates, but very few people can access them due to the price point. Masterworks aims to make it possible for anyone to invest in this asset class by offering the opportunity to invest in artworks at an affordable entry point.” Said CEO Scott Lynn in the company’s press release.
How does it work?
Masterworks.io functions like any other crowdsourced offering. The company buys a piece of art and then sells shares of it to the general public. Oftentimes, people correlate a lower price with a lower value. In fact, the art retains the same value as before, but simply more people own a piece of it.
Masterworks.io tried to find art that has the potential to continue to appreciate. They are essentially the art buyer for the working class of the world. Selecting rare pieces that will not be hanging on your mantle, but will become more valuable over time.
Once a piece is selected, Masterworks.io buys it then registers the art with the Securities and Exchange Commission (SEC). This securitizes art. After the art is approved by the SEC, Masterworks.io can list it for sale on their platform. The first piece will be Warhol’s 1 Colored Marilyn with 99,825 shares on offer.
Retirement Nut Ratings
Liquidity – 1/5
Unlike some of the other regulation C offerings, the exchange of shares or the second market to create liquidity does not exist. This means that you can only sell the asset when the sponsor decides to sell, unfortunately, this puts you out of control of your investment.
Fees – 2/5
Masterworks.io charges 1 and 20. This is similar to hedge fund fees and equates to a 1% annual fee and a 20% fee on profits. These hedge fund fees have been under fire in recent years with their underperformance. These fees can only be stomached with significant outperformance.
Diversification – 4/5
Only a handful of paintings currently being offered to make this a challenge to diversify across multiple assets, time periods and risk profiles.
Long Term ROI – 5/5
The access to a formally inaccessible asset class makes this a unique opportunity.
Ease of Use – 4/5
Selecting the potential investments, funding the account and the user interface were all a breeze.
Total – 16/25 – 64%
Is it a good retirement opportunity?
Masterworks.io is an interesting take on a once unattainable type of investment, reserved for only the wealthy. Yes, diversifying your retirement interest is the key to on time or early retirement. As we recommend in the ‘Take 5 Percent of Your Retirement to Invest in Risky Alternatives Post,’ adding a mix of riskier assets that are likely to appreciate are very valuable to your long term growth strategy. The question is not if Masterworks.io is the right investment option for you, but rather is a better alternative than the other crowdfunding opportunities out there.