Preserving and growing wealth
In the past the general consensus is in order to preserve and grow wealth it was best to use what was called the 60/40 model, which means 60 percent of your capital in stocks and 40 percent in bonds. I believe those days are over now that both stocks and bonds have been getting hammered at the same time.
The primary reason why is because the actions of the Federal Reserve in creating money out of thin air has resulted in a debt burden of over $31 trillion in the U.S., which will without a doubt continue to climb...until it can't.
As I write the Fed has been raising interest rates to combat high inflation, but the problem it has is it can only raise rates so high because it would make it close to impossible for the government to pay down its obligations if interest rates climb too high. That's why it's limited as to what it can do.
My view is I don't think we're going to see the 60/40 rule serve investors well going forward, and that means we need to think of new ways to invest in order to protect and grow our capital.
How the wealthy have done it for a long time
A secret the wealthy have known for a long time is if they want to preserve their wealth they have to use some of their capital to invest in things that don't correlate with the stock or bond markets. That way, during period of times when stocks or bonds are underperforming a significant portion of their wealth continues to grow.
That said, most of the concern of the wealthy is to preserve wealth during tough economic times.
So how have they done it? They invest in things like art, wines, luxury items that hold and preserve value, among other things.
Before you think this isn't relevant to you, it needs to be understood that in the not-too-distant past there has arisen fractional platforms that allow the regular person to take small positions in high-end items such as watches, wine, vehicles and other assets.
We'll get into more detail on that a little later in the article, but now let's look at fractional ownership and what it is.
There are two types of fractional ownership. There is the type where people or businesses get together and buy a percentage of a large item such as a plane or yacht in order to share costs of ownership. This isn't the type I'm talking about in this article, but it's important to know in order not to get confused when researching it.
Fractional ownership, as covered in this article, is the acquisition of a portion or fraction of an asset that an individual wouldn't otherwise be able to afford.
The easiest way to understand it is, instead of buying a share in a stock you're buying a share in a specific thing, like a painting, etc. This is a trend that is starting to take off and should last for a long time into the future.
How to understand the collectible market
The key thing to understand is these types of collectible assets will outperform the stock market during the tough economic times, like we've been going through recently, but during bull markets they're likely to lag the market, although they will usually increase in value over a period of years.
Keep in mind, the reason to diversify into asset classes not associated with stocks and bonds is first, to preserve wealth, and second to grow it. High quality collectibles is the specific market that brings these types of results.
An example of this is when investors started thinking the worse was over, they started getting out of collectibles and allocating capital back into stocks and bonds. That isn't a good strategy.
The point isn't to allocate all your capital into one asset class or another. The best strategy is to take positions in assets that don't correlate with the economic forces that drive stocks or bonds up and down. The way to do it isn't to temporarily take a position for the purpose of growing our capital a little bit in the short term. The purpose is to hold these assets for the long term in order to build a solid foundation that will last long into the future.
Last, when looking at different collectible platforms that you might want to invest on, take into consideration how liquid an asset is if you want to sell it. Liquidity on these platforms would be related to how many people or institutions are using the platform, meaning there should be plenty of buyers and sellers signed up if you want to buy or sell.
Since the best strategy is to hold these assets for the long term, this isn't likely to be a huge problem, but you want to see that there are at least thousands of people using the platform in order to feel comfortable with using it for investing purposes.
I would recommend taking a very small amount of money and using it to take a position in something, let it sit for a while, and then attempt to sell it to see how it plays out. After your position in the item is sold, you could increase the amount you invest if the process worked smoothly.
One market at this time I would be very careful with would be the NFT market. Some wealthy people jumped on the bandwagon with news outlets covered the NFT market in a big way, and they lost millions on their holdings. I suggest waiting until the market matures more before investing in NFTs. They are highly speculative and not conducive to preserving or growing wealth as they stand today.
The best items that sustainably and predictably hold value are real, physical items, such as art, cars, coins, wine and jewelry. There are decent exceptions such as music royalties and some cryptos, but unless those markets are really understood, I would stick with physical items to start off with. You can also add other assets as you increase your expertise.
What to consider with physical assets
Remember, you no longer have to be rich to invest in high quality tangible assets, but it's wise to learn from the wealthy that have been doing it for thousands of years. Here's the three things they look for.
Like already mentioned, the first thing is they focus on real or physical assets. Again, there are exceptions to the rule like mentioned above, but physical assets are the safest and most enduring over a longer period of time.
Second, the best items will have a scarcity element to them. We don't want to buy commodity items that anyone can get at a very low price; they won't hold their value. This doesn't mean that they'll always be one of a kind (although with specific pieces of art they definitely will be), but it means there are limited numbers available to the investing public.
Third, there is a long-term history of these assets being very desirable and in high demand from wealthy people.
For those that take these three things into consideration, in most cases you'll not only preserve your wealth, but enjoy market-beating returns that will outpace inflation.
As a whole, the best performing collectibles over the last 10 years, in this order, have been cars, coins, wine and jewelry. Yet take into consideration that there are always outliers within any asset class. For example, some high-end watches have been recently increasing in value at a fast pace. These usually are acquired as an entire piece held by one individual, but it underscores the fact there are always outliers. Again, those outliers can and should be considered once we build a foundational portfolio of collectibles.
Some of the leading fractional investing platforms
Among the top fractional investing platforms are Collectable, which focuses on "fractional ownership of rare and culturally and historically significant collectibles"; Dibbs, a specialist in collectible cards of various genres, with the majority being sports cards; Koia, which targets a variety of quality collectible segments; Liquid MarketPlace, focusing on the general, quality collectible market; Masterworks, a platform that specializes in iconic artworks; Otis, a company that offers a wide variety of quality collectibles; Rally, which focuses on a variety of collectible markets, including memorabilia, books, art, cars, watches and wine, among others; and Rares, a specialist in rare sneakers.
Another important fractional ownership market is real estate. The concept is the same as other collectibles, but because it deals with a different type of knowledge and skillset, I didn't to do a deep dive into that in this article. Nonetheless, there are a growing number of fractional ownership platforms out there that target different aspects of the real estate market. They include but are not limited to Ember, Frxnl, hBits, Lofty, Luxury Shares, RealT, RealX, Roofstock, Strata, Tessera and Yield Asset.
If you're not familiar with real estate, I would recommend building a collectible investment portfolio using the former collectible list before venturing into the more complex real estate fractional ownership.
In regard to the above lists of fractional ownership investment platforms is it provides a wide spectrum of collectible options to choose from. Even if you know some of the segments, once you choose one or two, it's important to still do some research to catch upon on the type of momentum that particular collectible field has had recently, and also the specific item within the field.
Fractional asset ownership is a terrific way to preserve your wealth while growing it. Among most asset classes it outperforms them during tough economic times, and even during bullish periods it will usually grow in alignment with the S&P 500, and in most cases, over a period of time, outperform it.
Some of the collectible platforms listed above have minimum requirements on how long you need to hold the asset, but in some cases, it offers a secondary market option to sell your holdings.
I consider this a good thing since the purpose of taking positions in collectibles is to hold for the long term in order to preserve and grow your wealth, rather than move in and out of the market. It also provides an alternative to the stock and bond markets because they don't move in correlation with them.
Although these are very compelling options for investors, we all still need to perform due diligence in whatever we are considering investing in. Again, I would take a small amount of capital and experiment with taking positions while getting used to how the platform works.
Once those things are in place, over the long-term is should be an excellent way to protect your assets and build wealth, whether the economy is going strong or slowing down.