When people talk about investing, they usually think of shares of companies publicly traded on the leading stock exchanges, but alternative investments offer ways to expand your opportunities. “Alternative investments” include those in assets like real estate, venture capital, fine art, antiques, NFTs, and almost anything that has market value.
There are many advantages to alternative investments. They tend to have a low or negative correlation with traditional markets like stocks and bonds, which helps reduce volatility for stocks-based portfolios, acting as a hedge against market downturns. Alternative assets enable investors to diversify their portfolios and reduce exposure to risk – and also hold out the potential for higher returns than traditional investments.
But for a long time, because ownership in these types of assets comes at a premium, alternative investments were only an option for high net-worth individuals or institutional investors. Today’s trending fractional investment platforms like Masterworks, Arrived Homes and Vinovest open these opportunities up to everyday retail investors by inviting them to buy partial shares, or units, of alternative assets that would otherwise be out of their reach.
Fractional investment platforms overcome other barriers to alternative investing, like liquidity. Alternative assets are illiquid, meaning they are difficult to sell quickly, but fractional investment platforms often create secondary markets where people can trade fractional ownership with their peers on the platform. This makes your funds more accessible in an emergency.
Additionally, fractional investment platforms make it easier to diversify your portfolio. The same stake could buy one painting by an up-and-coming artist, but fractional investing means you can buy a share of that painting, plus part of a thriving hotel, a unit in a wine cellar, and participate in a fundraising round for a promising startup.
If you’re excited by the concept of fractional alternative investments, read on to discover three especially alluring platforms, each opening up a different world of alternative assets.
Fine art has long been the asset of choice of high net-worth individuals, but out of reach for most ordinary investors. Until now, that is. Masterworks allows you to buy shares in famous artworks, although you can’t hang them on your wall.
Masterworks buys pieces that are likely to appreciate in value, and registers each with the Securities and Exchange Commission (SEC). This makes them qualified investments that they can sell to retail and accredited investors. The platform holds onto each artwork for three to ten years before selling it, and then everyone who invested in that item splits the profits. You’ll have to wait several years before you earn a dividend, but you can sell your shares on the Masterworks platform if you need to liquidate in a hurry.
To participate, register with Masterworks and decide how many $20 shares you want to buy in which artworks. You can buy into a new item as a primary offering for 90 days after the SEC approves the filing, or buy shares from someone else on the Masterworks marketplace. The Masterworks Twitter feed is a valuable resource for quick updates on art investments.
Masterworks has achieved 29.03% net annualized returns so far, and prospects are good. The contemporary art market has seen an average annual return of 14.1% over the past 26 years. Masterworks has an overall rating of four stars on Benzinga, was voted the best for art investing, and has $500 million of assets under management (AUM).
Arrived Homes makes it possible for “ordinary” investors to build a diverse real estate portfolio. The platform chooses properties for investment and handles all the work of finding tenants and managing the property.
To join the property moguls, register for an account on Arrived Homes and browse the list of available properties. You can read all the details about each place before you commit. Then decide how many shares to buy and sign the online contract. The minimum investment is $100, and there’s an annual management fee of 1%. You’ll need to connect your bank account to invest and pay the fee, and to receive your dividends.
So far, Arrived Homes has bought 262 properties, most of which are rented out and generating income for investors. Arrived Homes pays out quarterly, and to date it’s paid between 3.2% to 7.2% in annual dividends. The only thing to bear in mind is that depending on your specific contract, your money is tied up for five to seven years.
Around 100,000 people have signed up to Arrived Homes, with about 10,000 active investors, and it’s received a 4.5 star rating on Benzinga and a score of 9 out of 10 from InvestorJunkie.
Vinovest is the next best thing to having your own wine cellar. The platform lets you invest in curated portfolios of fine wines, which are generally considered a non-volatile, non-market correlated asset. Unlike some platforms, with Vinovest you actually own the wines, so you can request a bottle to drink if you like – provided that you own the whole thing, that is.
Vinovest has a minimum investment requirement of $1000 and an annual management fee of 1.9% to 2.5%. When you join Vinovest, you choose one of three wine portfolios, depending on your appetite for risk. The Conservative portfolio targets annual returns of 5.5%; the Moderate target is 8%; and the Aggressive aims for 12% annual returns. Investors can also buy individual bottles of wine on the Vinovest marketplace.
Vinovest uses AI to choose the best wines for your portfolio, sources them at below-retail prices, authenticates every bottle, insures your wines, and stores them in the correct conditions.
You can sell your Vinovest portfolio whenever you like, although there’s a 3% penalty if you liquidate it within three years. But fine wines are a long-term investment, so plan to keep your portfolio for up to 15 years.
By Q4 2022, Vinovest had over $100 million AUM, and returned an average appreciation of 8.42%. Vinovest has a score of 8.5 out of 10 from InvestorJunkie, and the Liv-ex Fine Wine 100 index has historically outperformed the S&P 500.
With the stock market proving unreliable and often delivering poor returns, alternative assets are becoming more appealing. While they’re hardly risk-free, fractional investing platforms like Masterworks, Arrived Homes, and Vinovest are democratizing access to alternative investments.
Now retail investors can hedge their portfolios and diversify just like high net-worth individuals, but without worries about liquidity or the hassle of selecting the best assets.
This post was last modified on May 30, 2023, 10:52 BST 10:52