Users need to design their own art investment portfolios
While Masterworks charges a hefty annual management fee, you’re ultimately the one choosing the fractional stocks that make up your portfolio. Contrast this approach to a robo-advisor or mutual fund, where experienced, professional wealth managers select the assets that make up your portfolio.
For investors who have a strong interest in contemporary art, this may not be a huge disadvantage. However, if you are not well-informed about current trends in the visual arts market, you could be at a disadvantage when choosing the best choice.
However, Masterworks’ experts check the quality of each piece and only list those that they believe have good investment potential. But at the end of the day, you have to decide which works suit you best.
Art investments involve great risks
Masterworks itself warns that investing in art carries great risks. Artwork does not generate ongoing cash flows such as interest payments or dividends. The only way to get a good return on your investment is if someone later buys the piece at a higher price, which is not guaranteed by Masterworks.
The platform’s secondary market offers users an opportunity to cash out early, but that also comes with risks. While you can try to sell your shares, there must be another Masterworks user who wants to buy, and that’s not guaranteed either.
Higher taxes on art
Works of art are taxed as collectibles and are subject to a long-term capital gains tax rate of 28%. That’s higher than the long-term capital gains tax rate on traditional investments, which is 20% for the wealthiest Americans.
Requires a phone interview
Before you can join Masterworks, you need to have a phone interview with one of the company’s specialists. The interview is not a way to turn down some applications; on the contrary, it offers Masterworks the opportunity to get to know you better, answer your questions and recommend investments.
For some potential users who prefer an online-only investing experience and want to get started right away, the interview process can be tedious.
No mobile app
Masterworks is just a web platform. They currently do not offer a mobile app.
Secondary market only available to US residents
To buy and sell shares on the Masterworks secondary market, you must be a US citizen with a US bank account. This could put international investors off one of the platform’s key features.
