Art can inspire awe and appreciation—but it can also appreciate in value or provide protection against inflation.

Christophe Spaenjers, an associate professor of finance in the Leeds School of Business, studies real assets, including art, and has found that artworks can be a better way to preserve purchasing power than traditional investments like bonds. 

However, art investment has lottery-like features. “Many artworks appreciate at a moderate rate, but a very small fraction realize extremely high returns,” Spaenjers wrote in a 2023 report published by investment bank UBS and international art fair Art Basel.

CU Boulder Today sat down with Spaenjers to discuss the how and why of investing in art.

What makes art an attractive investment in an inflationary environment?

Many financial assets are hurt by inflation. For bonds, inflation has a major effect because the cash flows are fixed. So the purchasing power of the payments associated with bonds goes down. Inflation also has a negative effect on things like stock prices.

So some people look at real assets in times of inflation, and different types of collectibles have often done relatively well. There is gold, of course. But there’s also art and other types of collectibles that are arguably more “gold-like,” like diamonds and wine, which are easier assets to move into than art. 

With these investments there are no cash payments, so their values are not tied to financial income streams. When inflation goes up, there's nothing that stops art prices from going up as well. 

Who invests in art? Do you need to be a millionaire?

I would definitely never recommend the average household to start buying art just as an investment. For most households, there's plenty of other assets that they would probably invest in first, like stocks, bonds and real estate.

If you're fortunate enough to be relatively wealthy, then collectibles can be an interesting addition to a portfolio. Even then, you shouldn’t consider only the financial aspect, unless you’re a market insider or can afford to build a diversified collection of blue-chip artworks. For most people, it only makes sense if they enjoy the artwork and are also looking for nonfinancial returns.

Are there options for less-wealthy investors to enter art investing, such as buying fractional shares?

There’s a long history of efforts like this, but many have failed. I’m always a bit skeptical. Investment vehicles like these tend to be associated with high fees for end investors—in a market that already has high transaction costs.

You also have to read the small print. Who decides on when the work is resold? Where is it going to be stored or displayed? I think in many cases the investors would probably be better off buying a piece that they can enjoy, even if the financial return might be slightly lower. Or put their money in more traditional financial assets.

What determines success as an art investor?

There's a lot of different elements that will determine your financial success. Some collectors are very knowledgeable about which artists are becoming more popular or about which other collectors are looking to buy or sell. But there’s also luck. 

Something I wish people were more aware of is that it’s not just like you’re buying a stock and then your investment moves in step with the S&P 500 index. It doesn’t work like that. Every art asset is unique, and there’s a lot of heterogeneity and elements of noise that are outside of your control. 

Some artists will go up in value a bit, a couple will go up a lot, and others not at all. You might be lucky to face little competition when buying at auction or unlucky and have to pay a high price. 

It is important to know the strengths and limitations of marketwide indices. They can give you a good sense of what prices have done historically, but most art collectors have a very small portfolio, which can do much better or much worse than the market as a whole.