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A New Way to Invest in a Million-Dollar Painting

Miranda Marquit

The idea of investing in and owning beautiful things is nothing new. Many people like the idea of making a purchase that is both lovely and valuable -- like art.

Getting into the art market, though, is difficult.

"Historically, investing in art is limited to the ultra-wealthy," says Scott Lynn, the CEO of Masterworks.io, a website that aims to make art investing more accessible. "There has been around $68 billion in art sold so far in 2019, but it's mostly really wealthy people buying and selling art with each other."

[See: Beware of These 7 Blind Spots in Your Portfolio.]

Lynn points out that about 60% of art pieces sold are attributed to the top 100 artists -- and those pieces go for more than $1 million -- and sometimes more than $10 million.

"There might be a few art funds out there, but there isn't really a way for ordinary people to invest in art," Lynn says. "We wanted to change that, so we came up with Masterworks.io."

It's true that if you invest in art using Masterworks.io that you're not going to get something beautiful to hang on the wall. Instead, you're going to own a piece of the painting that's located elsewhere.

Lynn explains that Masterworks.io purchases a painting and then registers it as an IPO through the SEC. Once that's done, "shares" of the painting are available for purchase on the website for as little as $20. In order to make the purchase, though, you have to register with the site and request an invitation.

The Masterworks.io portfolio includes works by Andy Warhol, Pablo Picasso, Claude Monet and Joan Mitchell -- artists that produce what Lynn calls "blue-chip art."

However, there are downsides to being able to buy shares in a painting. The biggest issue? Liquidity.

Those who choose to invest this way are stuck with their investment until Masterworks.io sells the painting, hopefully at a significant gain.

"Eventually, we will sell the painting and distribute the proceeds among the investors, based on the number of shares they have," Lynn says. "But until then it's a very illiquid investment. We look at it as a three- to seven-year hold period."

The nature of the art market is such that it doesn't usually make sense to sell a painting within the first couple years of a purchase, Lynn says. You don't see a lot of art-flippers trying to make money by turning around and selling a $5 million painting a few months after buying it at auction.

[See: 7 Easy Ways to Invest Without Much Money.]

Additionally, like any asset class, the price of art can be subjective and it's possible that the paintings lose value. Even though art is one of the oldest asset classes, Lynn says, there is still the potential that things could go bad.

"When committing to buying a painting, whether you do it in shares or whether you can afford to buy the whole thing," Lynn says, "you're locking up your money with the understanding that this is a multi-year commitment."

Lynn doesn't expect to stop at just making it possible for practically anyone to own a piece of famous art, though. Right now, Masterworks.io is working on a secondary market for their art shares.

"We're working with the proper regulatory agencies to try to create an exchange," Lynn says. "When this gets up and running, an investor will be able to offer their shares for a certain price, and a buyer can decide to accept or make a counter offer."

Lynn admits that even though this type of arrangement would increase the liquidity involved on the art market, it still wouldn't approach the liquidity of a publicly traded stock.

"The reality is that art is just generally more illiquid than the stock market," Lynn says. "There's always going to be that liquidity risk, even if we make blue-chip art more accessible to the wider population."

Masterworks.io is not the only company working on helping more ordinary folks get into luxury items that might be considered high-end investments. Rally Road provides car enthusiasts the ability to purchase stakes in classic cars, starting at $50.

And, of course, there are various real estate crowdfunding websites designed to help you invest in various projects in a way that wouldn't work for many ordinary investors without a large chunk of capital. Plus, there are companies that also allow you the chance to invest in company startups, getting in on the ground floor with what might be the next big thing.

Technology is making it possible to reach more people and increasingly, the idea of using small amounts of money to own a fraction of a high-end investment appeals to those for whom things like art and classic cars are traditionally out of reach.

[See: 5 Reasons a Market Crash Is the Perfect Time to Buy.]

While these investments can seem exciting, though, it's important to take a step back. Make sure you can afford to have that money locked up for several years -- or even potentially lose it. Just because you can now invest in something that was once out of reach doesn't mean you should.



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