In today’s turbulent economy, it’s crucial to look for ways to build a hedge against financial stress. Traditional assets like stocks and bonds are known to depreciate in value during a recession. That, in turn, emphasizes the importance of investing in alternative assets that hold strong during economic downturns and periods of inflation.
When it comes to recession-proof alternative assets, blue-chip art can be an excellent choice. The art market has consistently delivered high annual returns over the years.
The best part is that with innovative platforms like the Masterworks app, art investments are no longer restricted to high-net-worth individuals. In this article, we’ll take a closer look at how retail investors can use Masterworks to include fine art in their portfolios. But let’s first take a closer look at what makes fine art a clever investment.
Why Fine Art Deserves Every Investor’s Attention
Data collected by Masterworks shows that contemporary art has demonstrated an average appreciation of 13.5% during high inflationary periods. It’s significantly higher than that of S&P 500 investments (5.5%) and corporate bonds (0.5%).
Moreover, the art market boasts a low correlation to other asset classes during periods of economic slowdown. This is because the value of a painting depends largely on its aesthetics, historical significance, and the artist’s reputation, none of which are connected to economic fluctuations.
The latest Art Basel and UBS Global Art Market Report revealed a 3% year-on-year increase in worldwide art sales in 2022. At $67.8 billion, global sales crossed pre-pandemic levels. These numbers highlight the art market’s resilience despite financial stress.
The Challenges of Blue-Chip Art Investing
Unfortunately, while investors might be familiar with the benefits of investing in fine art, they often hesitate to take the plunge. The asset class has been traditionally reserved for ultra-wealthy individuals with millions of dollars in dispensable cash.
That’s because blue-chip art comes with a hefty price tag. Most retail investors don’t have that kind of money available, and they don’t have access to the highly exclusive world of private sales. They also lack the experience and insight to understand whether it’s worth investing in a specific work of art.
Moreover, unlike stocks, commodities, and real estate, the art market isn’t strictly regulated. If an artist’s popularity declines over time, the value of their artworks will plummet, too. That means you could end up losing money, even if you invest in masterpieces by a trending artist. The subjective nature of art makes it even more difficult to predict returns with confidence.
Another crucial challenge that deters investors is the art market’s inherent illiquidity. If you purchase a masterpiece by an artist, you’ll have to retain it for several years before you can see significant returns from a resale. Plus, finding ultra-wealthy buyers can be complicated, expensive, and time-consuming.
These barriers to entry have turned fine art into a closely guarded asset class that’s out of reach for ordinary people. That’s where a platform like Masterworks steps in to simplify the process and make art investments accessible to retail investors.
How Masterworks Democratizes Blue-Chip Art Investments
Founded in 2017, Masterworks provides a platform for regular investors to buy fractional shares of paintings by renowned artists like Kaws, Basquiat, Monet, Warhol, and Picasso. As of this writing, the company has purchased more than 300 artworks and boasts a community of over 780,000 members.
Managing assets worth more than $850 million, here’s how Masterworks bridges the gap between retail investors and blue-chip art.
As mentioned earlier, one of the biggest challenges of investing in fine art is selecting the right artwork. Masterworks solves that problem using a powerful combination of hands-on research and modern technology.
The research team leverages historical art sales data to identify artists with maximum momentum for investing. They also use machine learning models to predict how different artist markets will perform over time.
The acquisition team uses these insights to purchase paintings that are likely to deliver high returns in the future. It takes the guesswork out of the process, encouraging retail investors to approach blue-chip art with more confidence.
After purchasing a painting, the team at Masterworks files an offering circular with the SEC to allow the public to invest. The fractional investing model lets you buy shares of an artwork for as low as $20.
In other words, unlike art galleries and auction houses, the platform doesn’t restrict art investments to people with troves of liquid cash.
This is precisely how the company makes blue-chip art accessible to retail investors.
Besides making art investments affordable, Masterworks also addresses the problem of illiquidity in the art market.
The platform holds a painting several years before selling it and distributing the pro rata proceeds among shareholders, which keeps your infested funds effectively inaccessible.
The good thing is that Masterworks provides a secondary market where you can sell your shares to other members. It’s as easy as selling shares for cash on a stock trading platform, which, in turn, gives you more control over your finances.
Demystifying Blue-Chip Art Investments
Investing in masterpieces by world-renowned artists has been a distant dream for the vast majority of retail investors.
Masterworks’s innovative fractional investing platform eliminates the barriers of entry associated with high-end art investments. The secondary market also facilitates peer-to-peer trading to ensure your assets remain liquid. These features remove the exclusivity associated with fine art investing and give retail investors a chance to diversify their portfolios.
However, as with any alternative asset class, it’s crucial to assess your financial goals and determine whether blue-chip art is the right asset class for you. It’s a good idea to include a mix of traditional and alternative assets in your portfolio to ensure you can meet your short-term and long-term investment goals.