When you think of fintech companies, you probably think of PayPal Credits (NASDAQ: PYPL), To block (NYSE:SQ) (formerly Square), or Robin Hood (NASDAQ: HOOD). In recent years, we have seen a rise of other types of fintech companies, companies that are democratizing industries once inaccessible to the ordinary investor.
Fine art, real estate and farmland are three alternative investment options that are now easier to invest in than ever. Here’s what makes each asset class an attractive addition to a diversified equity portfolio.
1. Fine arts
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 works of art is a complicated and capital-intensive business.
Founded in 2017 and launched in 2019, Masterworks is a company specializing in securing art. It buys top-notch works of 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 breaks down barriers to entry into the art market. The fees are also reasonable, as Masterworks only charges a 1.5% annual management fee and takes a 20% discount on future earnings. The fees are for insurance, storage, regulatory costs, appraisals and administrative costs. Masterworks is essentially a hedge fund for the art market.
Masterworks has an extensive database that helps it select artists whose work it believes will appreciate over time. From there, the company buys the art, stores it, secures it, and then holds it for three to 10 years or resells it in a secondary market. As an individual investor, you can choose from a collection of artworks and build your personalized portfolio.
2. Real Estate
Investing in real estate is another specialized area with high barriers to entry. For many Americans, a home might be their only exposure to real estate. Although a house is likely to appreciate over time, it is also illiquid if it is a primary residence.
Like Masterworks, Fundrise securitized real estate investing by allowing ordinary Americans to invest in residential and commercial real estate. This is another low-cost solution that can give you exposure to an asset class outside of the stock market.
On Fundrise, users select an investment plan based on their investment preferences, such as long-term growth versus additional income. From there, Fundrise builds them a diversified portfolio of real estate investment trusts (REITs) with varying time horizons and risk levels. Like a publicly traded REIT, Fundrise distributes dividends, typically in April, July, October and January.
Although you may have thought of fine art and real estate as a potential investment, you may never have thought of owning farmland. Like Masterworks and Fundrise, AcreTrader is another company that secures an industry and allows individual investors to buy a small share of a single asset class. Farmland, fine art and real estate are durable assets, making them excellent hedges against inflation and potential passive income streams via dividends.
According to AcreTrader, $10,000 invested in farmland in 1991 would be worth more than $215,800 today, making farmland one of the few asset classes that have outperformed S&P500 over this period of time.
AcreTrader is a smaller company than Masterworks or Fundrise. It has a long subscription process, which means that there might not be any investment offers on its site at any given time. As of this writing, the only investment available is a corn and soybean farm in Knox County, Illinois, which is expected to produce an annual return of 8.1%. However, the minimum investment is much higher at $15,700.
AcreTrader has higher barriers to entry than the other services mentioned. However, it is arguably the best option for a retail investor looking to buy farmland.
Go off the beaten track
Fine art, real estate and farmland are limited-supply real estate assets that have a medium to low correlation to the stock market and are resistant to inflation. Companies like Masterworks, Fundrise, and AcreTrader lower the barriers to entry into these asset classes, making it easier for an investor to add diversity to their portfolio.
The US stock market remains a very attractive mix of liquidity and excellent long-term returns. However, investing in categories other than stocks is a great way to limit the downside risk that a single asset class can impose on your financial well-being.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.