How fractional ownership allows you to invest like the Upper Ten

Your key takeaways

• Economic slowdown and rising inflation require investors to diversify their capital across both traditional and alternative assets to preserve their funds
• Portfolios of wealthy individuals appear to be less vulnerable to economic downturns because they typically use their large financial resources to access alternative assets
• Alternative assets, such as real estate and collectibles, are exclusive investments that do not fall into the traditional investment categories of stocks, bonds and cash
• Alternative assets show a low correlation to traditional investments, making them an excellent diversifier for a robust and well-balanced financial portfolio
• Fractional ownership has finally made it possible for the everyday investor to access alternative assets in a convenient, flexible and cost-effective way

‍Unexpected events shock financial markets and end an era of cheap capital
However, the gold-rush atmosphere that fueled international financial markets for over ten years now appears to be coming to an end as crisis and macroeconomic challenges loom on the horizon. The COVID pandemic and the Russian invasion of Ukraine shocked market participants and severely disrupted economic and financial structures worldwide.

A strict zero-COVID policy in China and an incipient real estate bubble in the Asian country put further pressure on these structures.The economic slowdown is here, and the unforeseen events of recent years have led to major fiscal policy interventions. While central banks in many countries began to tighten monetary policy in an effort to tame high inflation, traditional assets such as stocks and bonds, which have been a safe bet for years, are losing value and appeal. The everyday investor finds himself in an environment where rising interest rates require new strategies for capital preservation.

‍The rich get richer, even in times of market turmoil
‍Unlike many financial market players who simply lose money in times of crisis, there is one group of individuals who seem to be less susceptible to the negative effects of economic regression: the rich. Research by the UK’s Financial Times shows that in 2020, when disease and global shutdowns forced an additional 100 million people into absolute poverty, billionaires managed to increase their wealth by an estimated 60%. Consulting firm Capgemini further explains that in 2021, the second year of the pandemic, the number of global U.S. dollar millionaires rose by 7.8%.

The question needs to be asked what strategies rich and super-rich individuals use to preserve and even grow their wealth under difficult conditions. It could be argued that this type of investor, in addition to having a lot of money, simply has the specific experience, know-how and contacts to successfully develop a strong investment portfolio that is resilient to global economic downturns and inflation. While this may be true to some extent, the rich primarily leverage their vast financial resources to gain access to a wide range of financial instruments, including alternative assets such as real estate, forest land, hedge funds and rare collectibles.

‍Alternative assets support a diversified, inflation-resistant investment portfolio
‍There is no doubt that traditional financial (TradFi) assets, more precisely stocks, bonds, cash and cash equivalents, should be the mainstay of any successful portfolio. Over the past few centuries, these assets have proven to be a powerful tool for wealth creation and growth. To this day, they remain at the core of investment strategies.

But what are alternative investments? An alternative investment can be described as an investment that does not fall into the conventional categories mentioned above. Alternative assets can be tangible, such as real estate, bars of precious metals and collectibles, or intangible, such as digital assets like cryptocurrencies, non-fungible tokens (NFTs) or carbon credits.

Alternative assets have their own reason for being. Especially in the current market conditions of economic slowdown and runaway inflation, alternative assets show their true strengths. They are known for their low correlation to traditional assets and have a relatively low volatility, making them an excellent diversifier for a robust, well-balanced investment portfolio.

Fueled by the COVID pandemic, alternative assets have experienced a significant boom as investors have become increasingly wary of global stock markets and have turned to other safe-haven asset classes. This is particularly true for the market of collectibles.

This market is highly attractive, but its high barriers to entry have long made it accessible only to a small group of affluent and well-connected investors. This is because the average investor can't afford to pay the high prices, doesn't have the network to access the assets, and lacks the expertise to evaluate both investment potential and risk.

As a simple example, the Ferrari F40, one of the most iconic supercars of the late 80s, has appreciated significantly in recent years. While prices were in the high six figures before the COVID pandemic began, this model now sells for up to $3 million, depending on originality and condition.

Then there are the ongoing costs of owning the asset, including storage, maintenance and insurance. The good news is that there is a way for investors with limited financial resources to participate in the financial performance of such a high-value asset. Fractional ownership is the name of the game.

‍Fractional ownership breaks down high market entry barriers of alternative assets
‍The concept of fractional ownership has been around for a while and was first introduced in the real estate and aircraft industries where investors wanted to participate in the ownership of an asset while minimizing the time commitment and financial risk involved.

Fractional ownership is a way for multiple investors to collectively own a high-value asset, such as a classic Porsche 911, by dividing its ownership into smaller, more affordable shares. Investors can buy these shares, making them a legal owner of the equivalent percentage portion of the asset. As the value of the asset increases, so does the value of this portion and vice versa. Sounds good? Here are three interesting facts about fractional ownership:

• Accessibility is the key benefit of fractional ownership. Fractional ownership breaks down the high entry barriers of alternative investments and democratizes an asset class that was, until recently, only available to the wealthy. With the click on the smartphone or computer, the average investor can buy a fraction of a Picasso, a Porsche 356 Speedster or a Stradivari violin for portfolio diversification purposes – or just for the emotional benefits that come with owning a fraction of a cool item.
• Diversification, diversification and diversification. As economic slowdown and high inflation threaten international financial markets, investing in collectibles as a form of alternative assets helps build a solid, well-balanced and crisis-resistant portfolio. In this sense, fractional ownership allows investors to spread their capital across a variety of items to suit individual taste and needs. A portfolio within a portfolio. Since almost anything can be fractionalized, the possibilities for diversification seem endless.
• Fractional ownership eliminates the hassle of buying and managing a collectible in whole. When it comes to participating in the appreciation of a rare painting or a beautiful classic car, fractional ownership offers the greatest flexibility. Collectibles are notoriously long-term investments with illiquid characteristics and high maintenance costs. However, fractions of these assets can be easily traded on secondary markets whenever investors wish to cash out. A small processing fee is charged by the provider to take care of the asset. All without the hassle of renting storage space, employing mechanics and buying complicated insurance.