When you think of fintech companies, you probably think of PayPal Holdings, Block (formerly Square), or Robinhood. Over the past few years, we've seen a surge in other kinds of fintech companies, companies that are democratizing industries once inaccessible to the everyday investor.
Fine art, real estate, and farmland are three alternative investment options that are now easier to invest in than ever before. Here's what makes each asset class an attractive addition to a diversified equities portfolio.
Fine art is arguably the best-performing asset class of all time. However, it also has some of the highest barriers to entry of any asset class, let alone any luxury investment category. Buying, safely storing, and selling fine art is a complicated and capital-intensive business.
Founded in 2017 and launched in 2019, Masterworks is a company that is in the business of securitizing art. It buys blue-chip art from well-known contemporary artists like Basquiat, Calder, Warhol, and Rothko and creates shares in that art so that retail and accredited investors can invest. It's a brilliant business model that is tearing down the barriers to entry into the art market. The fees are reasonable too, as Masterworks only charges an annual 1.5% management fee and takes a 20% cut of future profits. Fees go toward insurance, storage, regulatory costs, appraisals, and administrative expenses. Essentially, Masterworks is a hedge fund for the art market.
Masterworks has an expansive database that helps it select artists whose work it believes will appreciate over time. From there, the company purchases the art, stores it, securitizes it, and then holds it for three to 10 years or sells it on a secondary market. As an individual investor, you can pick from a pool of art pieces and build your customized portfolio.
Investing in real estate is another specialized field with high barriers to entry. For many Americans, a home could be their only exposure to real estate. Although a home is likely to appreciate over time, it's also illiquid if it's a primary residence.
Like Masterworks, Fundrise has securitized real estate investing by making it possible for everyday Americans to invest in residential and commercial real estate. It's another low-fee solution that can give you exposure to an asset class outside the stock market.
On Fundrise, users select an investment plan based on their investment preferences, such as long-term growth versus supplemental income. From there, Fundrise builds them a diversified portfolio of real estate investment trusts (REITs) with varying time horizons and levels of risk. Like a publicly traded REIT, Fundrise distributes dividends, typically in April, July, October, and January.
While you may have thought about fine art and real estate as a potential investment, there's a chance you've never thought about owning a piece of farmland. Like Masterworks and Fundrise, AcreTrader is yet another company that is securitizing an industry and making it possible for individual investors to buy a small share of a unique asset class. Farmland, fine art, and real estate are hard assets, making them excellent inflation hedges and potential passive income streams through dividends.
According to AcreTrader, $10,000 invested in farmland in 1991 would be worth over $215,800 today, making farmland one of the few asset classes that have outperformed the S&P 500 over that time frame.
AcreTrader is a smaller outfit than Masterworks or Fundrise. It has a long underwriting process, which means there could be zero investment offerings on its site at a given time. At the time of this writing, the only available investment is a corn and soybean farm in Knox County, Illinois, that is expected to produce an 8.1% annual return. However, the minimal investment is a much higher $15,700.
AcreTrader has higher barriers to entry than the other services discussed. However, it's arguably the best option out there for a retail investor looking to purchase farmland.
Thinking outside the box
Fine art, real estate, and farmland are real assets with limited supply that have medium to slim correlation to the stock market and are resistant to inflation. Companies like Masterworks, Fundrise, and AcreTrader reduce the barriers to entry in these asset classes, making it easier for an investor to add diversity to their portfolio.
The U.S. stock market remains a highly attractive blend of liquidity and excellent long-term returns. However, investing in categories outside of stocks is a great way to limit the downside risk that any single asset class can impose on your financial well-being.
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