A complete beginner’s guide to alternative investments and art investing

George Sweeney 17th May 2022 No Comments

Reading Time: 6 minutes

With plenty of traditional investments and markets suffering right now, you might be considering alternative ways you can put your money to work. Whether that’s to protect it or grow it.

This guide is going to give you a complete overview of alternative investments. You’ll learn all about the different types, the risks involved, and how to actually invest.

Keep reading for the complete deep dive or click on a link below to jump straight to a specific section…

• What is an alternative investment?
• Why use them?
• Examples of alternative investments
• Can you make money with art?
• What is fractional ownership?
• How to invest in art
• Digital art and NFTs
• Advantages and disadvantages
• Things to check first
• What else to be aware of

 

What is an alternative investment?

This includes any type of asset that doesn’t fall within some of the more common categories you might already be familiar with.

The standard line-up of investments includes the likes of:

• Stocks and shares
• Bonds
• Cash

Alternative investments can include anything from property to art.

Why use an alternative investment?

At times it feels like the financial world is collapsing all around us. And although, for the most part, things normally settle down – that’s not always the case.

There has been plenty of times throughout history when there’s been a changing of the world order. And I’m not talking about Illuminati conspiracies.

Countries, governments, and currencies can all fail. It’s happened time and time again. So, I think we’d be naive to assume we’re immune from this sort of thing.

You don’t have to start shoving cash under your mattress in waves of paranoia, because that might not even help anyway.

But, you might want to consider alternative ways to keep and invest some of your wealth.

Using ‘outside of the box’ investments gives you an added layer of diversification. And, something fun to research and talk about!

What are some examples of alternative investments?

Certain investments that fall outside the category of ‘normal’ can be quite exciting, but others can be fairly dry.

One of the best ways to narrow down what sort of alternative investments might be worth your time, is by picking something that you have a genuine interest in.

Here’s a few examples of some traditional and unconventional alternative assets:

• Gold (and other commodities)
• Art
• Antiques
• Classic cars
• Watches
• Comic books
• Pokemon Cards
• NFTs (non-fungible tokens)
• Sports shoes
• Autographs and memorabilia

This style of investing was often reserved for the super wealthy. Mostly because they were the only people who had access to, and relationships within, some of the high-end markets.

Nowadays with the democratisation of just about everything, it’s possible for ordinary people to become more involved in these spaces.

There are even plenty of opportunities cropping up around fractional ownership where you don’t even have to buy a whole investment piece.

Can you make money with alternative assets like art?

Definitely. Some of the weirdest asset classes have actually been some of the best-performing areas over time. But, you need to know what you’re doing.

It can be hard to judge the performance of these markets as a whole because they are so nuanced.

According to Artprice, the Artprice100 index tracks ‘blue-chip’ artworks and saw an annual return of 8.9% since 2000.

The idea of an art ‘index fund’ is quite an interesting concept and could definitely be worth exploring. But, there’s no proper way to invest in an art index-tracker fund just yet. Maybe someday.

I think the idea of fractional ownership will be a game-changer. Because, unless you get extremely lucky, it’s hard to get hold of certain high-value assets.

What is fractional art ownership?

This means you can buy a percentage of an asset. By buying a fraction, you still get some benefits of ownership such as usage rights and income sharing from royalties or an eventual sale.

Just recently, Andy Warhol’s portrait of Marilyn Monroe – ‘Shot Sage Blue Marilyn’ fetched £158million at auction. This is great for the person who owned the whole piece, but what about everyone else?

Well, as part of the upcoming Platinum Jubilee celebrations, Showpiece have bought the original “Elizabeth II” Warhol print.

Rather than selling to the highest bidder, they’re dividing up ownership into shares.

Doing this makes it much more affordable for you to own a piece of art history. Allowing a wider group of people to invest and part-own an iconic piece of art.

For that particular piece of art, shares start at just £100. The idea being that once you own a share, you can have a say in the control of that piece. Also, there will eventually be a marketplace where investors can interact and buy or sell shares.

Another place allowing you to buy pieces (as in shares) of artwork is Masterworks. They purchase, securitize, and hold the art for 3-10 years. Once they sell the painting, you receive pro-rata proceeds. Or, you can sell your share at an earlier stage on their secondary market.

How to invest in art

Whether you choose art or another speciality area to invest your money, it’s worth taking some time to get to know the field. Some genuine curiosity will go a long way.

For example, if art is your chosen medium to explore:

1. Visit local galleries
2. Chat with experts (who are normally more than willing to chew your ear off)
3. Check out websites like Artnet and Sotheby’s
4. Buy a book on the subject, artist, or area you’re interested in

You can apply a similar approach to most alternative assets.

I’d suggest choosing something that at least piques your interest slightly. Otherwise, you’ll be bored out of your mind before even getting to the stage of investing!  If you need more inspiration, visiting an online gallery like Singulart is a good way to see what’s out there, develop a better understanding of the market, and even make a purchase.

What about digital art and NFTs?

The whole idea of art ownership has been thrown into a blender since the development of NFTs (non-fungible tokens).

I won’t bore you with all the technical details, but these are basically digital tokens that prove you own a digital piece of artwork.

You may have read stories about NFTs selling for millions. Putting them way out of your investing price range.

However, the idea of fractionalisation applies here too. There are decentralised websites like ‘Fractional’ that allow investors to buy pieces of expensive NFTs. Owning a portion as an investment, or just for fun.

What are the advantages and disadvantages of alternative investments?

Choosing more unusual investments can carry some pretty unique benefits:

• An extra way to diversify your investment portfolio
• Potentially very high rewards
• Possibly a good hedge against inflation

Of course, there are always two sides to every coin, the drawbacks include:

• They can be hard to sell if you don’t find the right buyer, making them illiquid
• Fewer regulations and rules in the markets
• Valuing items accurately can be tough
• Usually very long-term investments
• Higher risk of failure if you don’t know what you’re doing

What should you check before diving into alternative investments?

With these niche markets, it’s important that either:

1. You have a genuine interest in the space, allowing you to make an educated investment.
2. You know somebody, ideally someone you trust, who has knowledge or connections about a particular alternative investment.

This is because, with many of these investments, it can be the smallest details that make a difference.

For example, you don’t need a Fine Art degree to invest some of your money into artwork. But, some first or secondhand knowledge of the art industry will go a long way to making sure you make sensible investments.

The other thing is, having some interest in the asset means you might buy an alternative investment just for the joy of owning it. And, if the price appreciates, that’s a bonus.

What are some of the dangers of alternative investments?

Unlike most traditional markets or investments, these unconventional spaces are largely unregulated.

This means there are very few protections in place to guarantee your ownership. In plenty of cases you have to navigate around frauds, scammers, idiots, and those generally looking to take advantage.

Unfortunately, nefarious behaviour takes place in just about every industry. If there’s a way to try and con people out of money, someone will be plotting.

That doesn’t mean you should stay away completely. Just be sure to take plenty of time to research and check something out before handing over any of your money.

And, always be aware of the unconventional risks that come along with unconventional investments.

This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.