Investing in art gives an investor the opportunity to diversify their portfolios away from traditional financial assets.

Adding art to a well-diversified portfolio can improve its efficient frontier ? that is, the lowest possible level of risk for the highest possible level of return ? providing superior risk-adjusted returns.

Research shows an 18.47 percent allocation to art increases the annual returns to nine percent from 8.6 percent while decreasing risk by one percent.

Buying opportunity as prices correct

Art prices did slide along with other assets during the late 2008 to early 2009 period, which may provide a buying opportunity for those seeking to diversify into art ahead of the expected upturn in inflation and recovery in art prices.

Global demand for art will grow

Globally, more than 100 new museums have opened over the past 25 years, dramatically increasing the demand for high quality art. This trend can only continue based on urbanization and population growth trends.

Cities open museums as they pursue respectability and increased tourism. The 'Bilbao Effect' is the term used to describe how a successful museum can achieve a city?s drive for respectability and increased tourism, eventually reviving an entire city. Examples include: The Tate Liverpool, The Lowry Salford in the UK and The Louvre Abu Dhabi in the Middle East.

Demand for art will continue to grow as investments in museum quality works of art prove more immune to economic downturns than most traditional investment products.

Conclusion

Due to its status as a real, unleveraged, irreplaceable asset, art probably deserves a place in any significant investment portfolio, especially now that the benefits of art are readily available in regulated art investments funds.

If the value of money falls as much as the growth in money supply implies, those holding real assets should emerge in much better shape than those who don?t.

As an unleveraged real asset, the art market lags the equities market by about six to 18 months. Therefore, as the equities market has turned in March, 2009, this sends a positive signal to potential art market investors.