“The wealthy have access to all kinds of opportunities that you and I could never touch.”
I’ve heard variations of that complaint ever since I started my investment career more than 20 years ago.
And it’s often true!
For centuries, affluent families have used their wealth to invest in farmland, small businesses, mines or mineral reserves, oil wells, royalties or any number of other assets.
And those investments have generated income and led to even larger measures of wealth.
Meanwhile, “normal” families like yours and mine have been shut out of these opportunities…
Either because we didn’t receive information about the opportunities in time, or because these opportunities required too much money for the table stakes to get started.
Thankfully, a lot has changed over the last few years!
Financial technology (or FinTech) along with some good old-fashioned creativity has opened many elite markets to the masses.
And that means families like yours and mine can finally participate in some of the areas that were previously off limits.
Today, I want to share one particular example with you.
Hopefully, it’ll inspire you to think outside of the box when it comes to the different ways you can protect and grow your retirement wealth.
Building Wealth Through Modern Masterpieces
Perhaps nowhere is the “wealthy investors only” problem more apparent than in the art industry.
Sure, it’s well known that buying an original piece of art from a famous creator can lead to huge profits over time.
But not many of us have the financial means to invest hundreds of thousands of dollars into one single piece of art that may or may not rise in value over time.
Historically, the art market has belonged exclusively to high net worth investors.
Just a few months ago, I took a trip to visit a friend of mine who happens to be a wealthy business owner.
We were walking through a town out west when my friend Stan decided to step into a small gallery before we got dinner.
I had no idea that this gallery featured the works of a famous artist or that my friend Stan had been building his collection of original pieces from this artist.
As I walked around the room and marveled at the price tags for sculptures, paintings and unique pieces of jewelry, my friend Stan negotiated with the sales representative — and eventually the owner of the shop.
Ultimately, Stan bought one of the pieces and arranged it to be shipped to his office.
And after dinner, we took a quick drive to the office to see the other pieces of art he had collected.
Stan estimates that his collection is worth something close to a quarter-million dollars.
But because he bought most of the art before the artist became world-renowned, Stan didn’t have to pay anything close to that sum for the artwork he currently owns.
But What If You’re Not a Professional Art Investor?
For most of us, it can be tough to tell the difference between a masterpiece and something pretty that would look good in our homes.
I know I wouldn’t be able to identify an aspiring artist before they became nationally known.
And on top of that, many pieces of art go for tens of thousands of dollars each — and sometimes six or seven figures!
Even if I could come up with the money to buy one of those pieces, it probably wouldn’t be wise to put that much of my family’s wealth in one single art investment.
That’s a big part of why art has historically been one of those areas that only the wealthy could afford to invest in.
But that’s finally starting to change!
This past weekend, my brother asked me to take a look at an art exchange called MasterWorks.
(Please note, I’m not recommending MasterWorks or any of the art pieces that they have listed. But I do think it’s an interesting area to take a look at and consider for an investment.)
MasterWorks allows individuals to take a fractional investment in specific pieces of art.
It’s a creative way to help middle-class investors tap into this unique market without spending the amount that would be required to buy an entire piece of art.
Here’s how it works…
An exchange like MasterWorks purchases a piece of art through a business structure like a limited partnership.
It then allows investors to buy shares of this business thereby owning a certain percentage of the piece of art.
When the artwork is eventually sold, the partners receive their investment back plus any profits on the sale.
And by setting up an exchange, partners have the opportunity to sell their position to another investor at whatever price is negotiated between the buyer and seller.
It’s a very modern way to invest in an asset class that has been around for many centuries.
I did a limited amount of research over the weekend and found that there are a few competitors for MasterWorks that have similar investment offerings.
Arthena is one company that helps create custom products for institutional and individual art investors.
And Saatchi Art is an online gallery featuring art from many different creators from around the world.
Art As a Portion of a Balanced Plan
Here at Rich Retirement Letter, we often talk about having a balanced approach to investing.
That means we don’t put all our eggs in one basket and we try to own many different kinds of investments with different characteristics.
You shouldn’t “diversify” into 15 different tech stocks because over time most tech stocks will all trade higher or lower at pretty much the same time.
Instead, investing in different types of companies helps make sure that when one area of the economy is weak, you’re likely to have some investments in a different area that are doing much better.
When you invest in a different asset class altogether (like precious metals, real estate, or even art), you’re taking that concept to a whole new level.
Art has a history of being non-correlated to the broad stock market. That means the returns you can expect to get from art shouldn’t tie to the ups and downs in the stock market.
Of course, there will be ups and downs when you invest in art.
There are seasons where artwork is immensely popular with investors and you can expect to sell a piece of art for a very high price.
And there are other times when art isn’t as popular and you may have trouble finding a buyer who is interested at all.
That’s one of the problems with investing in specific art pieces.
Even though they may grow in value over time, you won’t necessarily be able to sell your investment immediately if you need the cash.
So it’s important to know that your money may be tied up for some time with this type of investment.
In today’s environment, I love the idea of investing some of your wealth into art — either by purchasing pieces based on your knowledge of the industry (hopefully you have more expertise than I do) or by using a company like MasterWorks to select a piece that is more likely to grow in value.
Art can help to offset the growing risk of inflation because any tangible asset that you can put your hands on tends to rise in price when inflation is high.
So if you’re interested in using art to help grow your retirement wealth, I’d say go for it!
Just make sure you keep a balanced approach with plenty of your wealth invested in other areas that you can easily sell when you need cash for everyday expenses.