Are you looking for ways to secure your investments during periods of economic uncertainty? Or do you want to maximize the returns from your existing investments?
In either case, diversifying your portfolio is crucial. It helps you harness a broad spectrum of opportunities across different asset classes. Also, it’s an excellent way to make your investments less vulnerable to market volatility.
The threat of a recession looming large earlier this year compelled retail investors to gravitate toward newly available alternative asset classes like fine art. Blue-chip art – masterpieces by renowned artists like Picasso, Warhol and Banksy – is known to hold its ground during periods of economic downturn. Additionally, it exhibits a low correlation to traditional financial instruments like stocks and bonds.
Traditionally, the world of art investing has been limited to ultra-rich individuals with troves of liquid cash in hand. Ordinary investors lack both the expertise and funds to try their hands at investing in fine art.
That’s precisely the challenge that the Masterworks app aims to address. With its fractional investing model, retail investors can purchase shares of world-famous paintings for as low as $20.
In this article, we’ll take a deep dive into how Masterworks lets you build a diversified portfolio. But let’s first understand what makes fine art the right choice for diversifying your investments.
The Place of Fine Art in a Diversified Investment Portfolio
First things first – worldwide art sales crossed $67 billion in 2022. The 3% year-on-year increase pulled the market higher than pre-pandemic levels. One of the biggest drivers of growth continued to be the high-end art market.
Additionally, data collected by Masterworks shows that post-war and contemporary art has appreciated at a CAGR of 12.6%. That’s significantly higher than the growth of the S&P 500 (9%) and corporate bonds (4.9%). Contemporary art has also consistently yielded higher annual returns (14%) compared to S&P 500 investments (9.5%) over the last 20 years.
It’s also worth keeping in mind that the value of fine art doesn’t depend on economic or geopolitical forces. Instead, the artist’s reputation and the painting’s historical significance influence its price. In other words, unlike stocks and bonds, art investments don’t depreciate in value during inflationary periods or recessions as much as other asset types do.
Case in point – Andy Warhol’s 200 One Dollar Bills sold for $43.7 million in November 2009 when the world was still reeling from the Great Recession. It was part of $134.4 million worth of post-war and contemporary art that Sotheby’s auctioned off on the same night.
Earlier that year, Yves Saint Laurent’s art collection raised more than $470 million in a three-day, six-part auction series at Christie’s Paris.
While no investment is a sure bet, masterpieces by renowned artists clearly have major potential to generate high returns, even when the market forces aren’t in favor – and that means blue-chip art ticks all the right boxes when you’re looking for an alternative asset class to diversify your portfolio.
The Elite Art Investors’ Club and How Masterworks Breaks the Barrier
Investors have been familiar with the benefits of investing in fine art for generations. However, the art market has been a closely guarded club of wealthy individuals who can afford to acquire artworks for millions of dollars.
Besides having a ton of liquid cash in the bank, you’d also have to identify artists and paintings that’ll generate high returns in the future. Most retail investors lack that kind of knowledge or insight.
Then there’s the problem of liquidity. Even if you manage to buy an acclaimed painting for a hefty sum, selling it is a different ballgame. Auction houses and galleries are often unwilling to re-sell the works of an artist they’ve already sold.
Even if you find a buyer, negotiating the right price can be difficult, given the subjective nature of art. Not to mention, you’d have to retain, store and insure the painting for several years before you see any actual appreciation in its value.
These challenges often make the world of fine art investments seem exclusive and intimidating. The good thing is that with Masterworks’s mobile-friendly platform, you can overcome these barriers to entry and invest in fractionalized shares of paintings by acclaimed artists like KAWS, Banksy, Yayoi Kasuma, and Jean-Michel Basquiat.
Democratizing Art Investing With Masterworks
Masterworks’s team uses the powerful combination of hands-on research and machine-learning models to identify artist markets with the maximum momentum. They use these insights to acquire paintings that’ll likely yield high returns in the future.
Once a painting is purchased, Masterworks files an offering circular with the SEC. It allows the public to buy fractional shares of multimillion-dollar paintings for as low as $20. That, in turn, eliminates the inherent exclusivity of art investing and makes it accessible to retail investors.
The use of data-driven insights also minimizes the risk of losing your hard-earned money behind paintings that won’t generate enough traction.
The platform retains a painting for three to ten years before selling it and distributing the pro-rata proceeds to shareholders. Alternatively, you can sell your shares to other Masterworks members in the secondary market as easily as you’d sell shares on a stock trading platform. That means your money doesn’t need to be locked in for years. Nor are you responsible for finding buyers or negotiating with art dealers to re-sell a painting.
As of this writing, Masterworks has purchased 344 paintings, managing assets worth over $882 million. The platform also boasts a community of more than 811,000 members.
Diversification With Blue-Chip Art Investing Made Easy
The last few years have been rife with slow economic growth, geopolitical tensions, and healthcare crises. An investment portfolio restricted to conventional instruments like equities and bonds isn’t enough to guard against shifting market forces. Alternative assets like fine art can come in handy here, due to their low correlation to other financial instruments.
Masterworks’s fractional investing platform eliminates the aura of exclusivity and eliteness associated with blue-chip art. It levels the playing field by allowing ordinary investors to buy fractional shares of famous artworks at an affordable price. That, in turn, encourages more people to include fine art in their portfolios and enjoy the benefits of truly diversified investments.
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