Portfolio Diversification for Middle-Class Investors with Masterworks
by Abdul Aziz Mondal Finance Published on: 31 July 2023 Last Updated on: 25 September 2024
Every successful investor knows diversification is critical to financial growth.
The more diverse the asset classes in your portfolio, the more protected you’ll be against market volatility – especially if you manage to distribute resources smartly across each investment type. At a time of clear economic uncertainty, diversification has never been more valuable.
Unfortunately, only around a third of Americans successfully diversify their portfolios. What’s more, many often struggle to look beyond “traditional” asset options, frequently focusing on equity, like stocks and bonds, overlooking opportunities like precious metals, collectibles, and real estate.
Masterworks, an innovator in the investment landscape, aims to change all that. Offering easy access to an alternative asset class, fine art, Masterclass is giving everyday investors an opportunity to not only diversify their portfolios further but also access the benefits of “uncorrelated assets.” The value of art generally moves independently of the stock market, providing additional wealth protection in a difficult landscape.
In fact, blue-chip art, Masterworks’ specialty, has outperformed the S&P 500 by more than 136% in the last 27 years, but until recently, it was only accessible to multimillionaires. Here’s how Masterworks is making true diversification possible for the middle class.
Boosting Accessibility To Recession-Resistant Assets
Ultimately, true portfolio diversification involves going beyond the basics of stocks, bonds, and equities. However, alternative asset classes haven’t always been easily accessible. Many, such as cryptocurrency, require a deep knowledge of a complex marketplace. Others, like fine art, have generally been reserved for those with huge volumes of available cash.
While art doesn’t always deliver the rapid returns of some riskier investments in the alternative asset landscape, it does seem to provide a higher level of security. When you’re investing in some of the greatest pieces ever produced, you’re unlikely to see a drop in your portfolio value.
In fact, Masterworks proved this, when after acquiring a Banksy Mona Lisa painting in 2019, it sold the same piece about a year later for a return of 32%.
Since the changes in the fine art market are uncorrelated with the stock market, the right pieces can offer excellent protection during a market downturn. The biggest barrier to entry for most investors in the art landscape has been the cost. Blue-chip art doesn’t come cheap.
That’s where Masterworks stepped in, to make the world of art investment a little less exclusive. Scott Lynn, the founder and CEO of Masterworks, created a platform where users can purchase and trade fractionalized shares in masterpieces from artists like Pablo Picasso, Andy Warhol, and Claude Monet.
How Masterworks Democratizes Art Investment
According to Lynn, he founded Masterworks after seeing the value of his own art collection appreciate. He believed art should be a more accessible asset class for everyone interested in portfolio diversification. By creating a platform that allows people to purchase “pieces” of a piece for as little as $20, rather than a full multi-million dollar creation, Masterworks allows any investor to diversify.
The concept behind the platform is relatively straightforward. Masterworks purchase a painting or art piece and file it with the SEC as a securitized offering. It’s similar to when a company goes public and sells shares to investors. Shares of the piece are then made available for purchase on the Masterworks website and mobile apps, with a new option appearing every few days.
The platform stands out for not only giving customers access to legendary art for a relatively modest buy-in but also for assisting users in increasing their results. Masterworks uses proprietary data to determine which artists have the most appreciation potential, before purchasing anything.
This allows the company to focus on the high-end segment of the art world, with more predictable returns. Its research team even works in the background to calculate correlation, appreciation, and loss rates on a consistent basis.
Masterworks also offers a secondary marketplace, giving investors on the platform the opportunity to trade shares in paintings.
The Future Of Art Investing Is Here
Masterworks has gained traction in the investment world for its pioneer status. However, it’s not the only company that’s paying attention to the rising value of the art asset class. Fractionalization and tokenization in investment are becoming increasingly common, particularly since the boom of the NFT and cryptocurrency markets.
A number of other platforms have jumped into the landscape since Masterworks first launched. In Liechtenstein, there’s the Artex stock exchange, which sells shares of pieces for as little as $100 each. In the UK, Mintu’s platform also offers similar tokenized art investment experiences.
However, the blue-chip art collection offered by Masterworks is one of the best in the world, and it’s constantly growing – to date, the company has purchased 300 paintings. Not to mention, the proprietary data analysis performed by the company increases the likelihood that Masterworks offers pieces with real value to its audience.
The platform also offers a comprehensive database, where people can check a piece’s gross appreciation, most recent sale price, and potential return, for their own due diligence.
Bringing True Diversification To The Middle Class
While diversification has always been a powerful tool in the investment world, it’s something many people have struggled to use effectively. The Masterworks fintech platform has effectively turned alternative asset investment upside down – in a good way.
The company has made waves year after year, earning an impressive $110 million in series A funding during 2021, and a market valuation of more than $1 billion. With Masterworks, anyone, no matter their background, can invest in high-performing art pieces, with minimal upfront cost.
Risks and profits are pooled, allowing access to new starters and veterans alike. Thanks to innovators like Masterworks, asset diversification has become a lot smarter, and far more accessible.
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