Is Art the Next Growth Asset Class? (Sponsored Content)

(This sponsored content may/may not reflect the views of the staff here at Early Retirement Dude.)

Balancing risk and reward is a constant dilemma for investors. Equity assets—stocks, mutuals, index funds—can grow across the intermediate and long terms but are highly subject to market fluctuations in the short term. The returns of “safer” fixed-income assets like cash and bonds may not be as high in the long term, but they don’t carry the short-term risk of equities either. Your appetite for risk should therefore dictate your asset mix.

As time passes and your retirement date draws nearer, it’s generally recommended that you blend higher and higher percentages of low-risk investments into your asset mix to ensure a sufficient post-retirement income stream. In other words, don’t take a high-risk, high-return approach to investing money you’ll soon need.

This is particularly important in times of economic uncertainty. While it’s impossible to predict exactly what’ll happen in the future, right now it’s clear that the market’s story is one of uncertainty.

For instance, at the beginning of 2019 a Wall Street Journal survey of economists found that the change of a recession in the next 12 months was at its highest level in seven years, with 25% predicting a downturn. But that changed by spring, with the International Monetary Fund declaring in April 2019 that these fears of recession were overblown and the global economy is more likely to grow into 2020.

In short, this was yet another reminder that we still don’t know what we still don’t know.

Rise of the alternative investments.

In times of market uncertainty it’s prudent to look into alternative investments like private equity funds, commodities, hedge funds, collectibles, and more. Many of these alternative investments are uncorrelated to broader markets, meaning they protect investors from the wild swings of the stock market by being better able to deliver positive returns in the event of a downturn.

According to Invesco, for the last twenty years alternative investments have outperformed more traditional asset classes like stocks and bonds. In fact, since 1999 an alternative portfolio has generated slightly higher long-term returns than equities, fixed income, or a traditional 60%/40% split of the two. At the same time, alternatives were much less risky.

This is why alternative investments are becoming increasingly important as tools for everyday investors to grow their investment returns while simultaneously protecting their assets.

These assets can be quite powerful. Yale University famously committed a large portion of its endowment to alternative investments in the 1980s, and has seen industry-beating results to date. In 2014, for instance, Yale’s endowment posted returns greater than 20%.

Art, the ultimate alternative asset.

Art is the ultimate alternative investment. It’s completely uncorrelated to the public markets and has delivered consistent positive returns through the decades—even during downturns. While the S&P declined 4.75% in 2018, the art market returned 10.6%, and was called “the best investment of 2018” by the Wall Street Journal.

In some regard, buying a work of art by a particular artist is akin to buying blue-chip stocks in a company. They share two key attributes: high quality and assured liquidity. But there’s a marked difference in performance.

Comparing the Artprice100—an index which considers the most important artists selling at auction—to the S&P 500 across the last 18 years. The Artprice100 has actually outperformed the stock market by 250%!

Think about what happened during that timespan. The dot-com bubble, the 9/11 tragedy and its market impact, the 2008 financial crisis…and art weathered it all as a growth asset.

Why?

It’s in part due to a supply that will never meet demand. So-called “investment grade” art, which carries six-to-eight-digit price tags and has a deep collector base, is very predictable. The artists in this category are often household names, attract a wide array of collectors, and typically have a track record of achieving high, if not record-breaking, auction sales.

And they aren’t making any more of it. Da Vinci and Picasso haven’t been producing any new works for a while, and they never will again. That fact only helps to further drive up demand and prices.

So art may not be the first asset class most investors think of, but it may well be the most reliable and lucrative over the long haul.

Masterworks is the first company to allow investors to buy shares of great masterpieces by artists like Picasso, Monet, and Warhol in much the same way investors purchase shares in public companies.

Author: ER Dude

Sick of your job? After a thirteen-year career, Early Retirement Dude fled corporate America for good. You can do it too! Visit http://EarlyRetirementDude.com or email EarlyRetirementDude@gmail.com.

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