What is art?
As an investment, art is simply an object with perceived value. If the perception improves, the value will rise. Increased interest in the artist or style can help. Supply and demand factors are also important, especially if an artist is no longer alive. Impediments include new artwork as well as the mass production of absolutely anything that can be displayed.
Every now and then we read about famous paintings auctioned off for fortunes. Many of the reports highlight record breaking prices for the given artist, style, or era. With records continually set, one can easily associate increasing art values with price behavior analogous to stocks and bonds. Art also looks great, or at least it should in the eyes of its owner.
Why you should avoid art as an investment
Maintenance
If you buy art with the intention of selling it for profit, you will have to keep it in proper condition. Most paintings, sculptures and artifacts must be kept in highly controlled environments, with strict and quite narrow ranges for temperature and humidity. Protection from theft and fire are also vital. The cost of all this maintenance diminishes potential gains. Failure in any one area of maintenance will wipe out your investment altogether.
Liquidity
You should be able to easily convert your investments into cash at known values. Stocks, bonds, and funds trade every day; you can calculate the exact amount of cash you would receive upon sale at any time. Art, however, changes hands at infrequent auctions and even less competitive private offerings. The works brought for sale at such venues are only worth the amount a buyer on hand is willing to pay. That amount may be a lot, or not. It is certainly not known. If the artist whose work you ponied up a small fortune for is not in demand, you may be looking at garage sale prices.
Competitive disadvantage
If you are an expert in art, not just knowledgeable about its history but rather fully aware of the auction process and the various supply and demand factors affecting prices, you can probably ignore this chapter. If you are not an expert, be aware that there are indeed experts out there whose main source of profit is taking advantage of people like you.
What you should do instead
Simply put, decorate your house in whatever manner you want it to look. Maintain your home environment at whatever temperatures and humidity levels make you most comfortable. Lastly, keep your investment dollars directed toward securities in a logical, liquid fashion. Section IV can be read and grasped in less time than a single art auction.