Between Passion and Returns: Art Is More Than an Investment

Art is regularly discussed as an attractive asset class. Record-breaking auction prices make headlines, individual works achieve spectacular increases in value, and wealthy collectors invest substantial sums in artworks. But how suitable is art as an investment? Anyone discussing art as an asset class should be aware that art is far more than a financial asset. Artworks may generate financial returns, but they are first and foremost cultural goods, expressions of personal interests, and part of one's living environment. It is precisely this combination of financial, cultural, and emotional value that distinguishes art from most traditional forms of investment.

In this interview, Dr. Laura Johanna Noll answers seven key questions about art as an investment and presents seven questions that collectors and investors should ask themselves.

Since the 1990s, art has increasingly been discussed as an alternative asset class. This development is based on the assumption that trends in the art market may differ from those in traditional financial markets. Academic research, however, has reached mixed conclusions. While some studies identify meaningful diversification benefits, others find only limited or context-dependent effects.

Both perspectives can be plausibly explained. Some researchers observe that art becomes more attractive as an alternative to traditional financial investments, particularly during periods of economic uncertainty. Others point to positive relationships between art and financial markets. Rising wealth and favourable economic conditions often lead investors to allocate capital both to conventional financial products and to art.

In addition, the art market exhibits distinct structural characteristics. Market segmentation, information asymmetries, and illiquidity can make it difficult to sell artworks at expected prices at any given time. Public perceptions of the art market are also frequently distorted by spectacular record-breaking sales. In reality, according to the latest Art Basel & UBS Global Art Market Report, only around one to two per cent of artworks sold at auction worldwide achieve hammer prices above USD 1 million.

At the same time, discussions about art as an investment often overlook a crucial aspect: art is never merely an investment vehicle. Beyond any potential financial return, it also generates emotional, cultural, and social value. Cultural economics therefore frequently refers to "psychic returns" or "emotional dividends." This combination of financial potential and cultural benefit is precisely what makes art particularly attractive to many collectors.

Private sales have traditionally played an important role in the art market. A significant share of high-quality artworks is traded not through public auctions but through galleries, art advisors, dealers, or directly between collectors. Private transactions are often preferred for reasons of discretion. Tax and inheritance considerations, the desire to avoid auction-related risks, or the need for a quick transaction may also play a role.

As a result, the most common motivations for selling art are often described as the "three Ds": Death, Debt, and Divorce. In such situations, the speed of a transaction may be more important than maximising the sale price.

However, private access does not automatically mean lower prices. Strong networks may provide access to information or artworks unavailable to other market participants. Yet the most desirable works are often accompanied by professional market intermediaries, and buyers compete with experienced collectors, institutions, and advisors. Exclusivity can therefore just as easily result in higher prices.

In the art market, "blue-chip" artists are generally understood to be internationally established artists with strong institutional recognition, extensive sales histories, and high market liquidity. Compared with younger or less established artists, their works may involve lower risk and exhibit more stable long-term value development. Greater security, however, does not automatically translate into higher returns.

In this context, researchers often discuss the so-called Masterpiece Effect. This refers to the widespread assumption that the most famous artists automatically represent the most attractive investments. Several studies show, however, that highly renowned and expensive works do not necessarily generate the highest returns. In some cases, lower rates of appreciation have even been observed. One possible explanation is that buyers often pay significant prestige and status premiums when acquiring iconic works.

Historical return data provide valuable insights but should not be mistaken for reliable forecasts. A large proportion of available analyses is based on public auction data, whereas many private transactions remain invisible.

There is also a methodological challenge. Research frequently focuses on works that have been sold multiple times, creating what is known as selection bias. Artworks that are sold only once, or never resold, are often excluded from analysis.

Furthermore, transaction costs, insurance, storage, transportation, and conservation expenses are often only partially considered. As a result, actual investor returns may differ significantly from published market indices.

At first glance, art prices often appear much more stable than stock prices. This impression can be misleading. While stocks are traded and valued daily, many artworks do not change hands for years or even decades. Potential changes in value therefore become visible far less frequently.

Moreover, every artwork is unique. Unlike stocks, there is no continuously observable market price. Limited transparency and infrequent trading mean that pricing uncertainties often remain hidden. Art may therefore appear more stable than it actually is.

Depending on the dataset and methodology used, academic research often reports long-term average returns for the overall art market between approximately 2.6 and 5 per cent per year. Individual artists, market segments, or time periods may generate substantially higher returns, but also substantially lower ones.

In addition, significant costs must be considered. Transaction costs of 25 to 30 per cent of the purchase price are not uncommon. Transportation, insurance, storage, maintenance, and potentially restoration expenses must also be taken into account.

If I were to view art primarily through the lens of investment, transparency, accountability, and market mechanisms would be at the centre of my considerations. In particular, I would ask myself the following questions:

1. How and why am I choosing a particular artwork?
Who makes the selection decisions, on what basis are those decisions made, and what expertise informs the process? What are my expectations when purchasing this artwork?

2. How was the artwork valued or priced?
What methods are used to determine the price, and who is responsible for valuation during purchase and sale?

3. What information is available?
Are provenance, exhibition history, ownership history, and previous transactions documented in a transparent and verifiable manner?

4. What costs are usually involved?
Beyond the purchase price, have management fees, transaction costs, insurance, storage, transportation, and restoration expenses been taken into consideration?

5. How liquid is the investment?
How realistic is it that the work could be sold within a desired timeframe, and at what price?

6. How are conflicts of interest avoided?
Who benefits, when, and in what way from the purchase, holding, or sale of an artwork? Are incentives and responsibilities transparent and clearly defined?

7. Would I still want to own this work if it never increased in value?
Personally, I consider this question particularly important. Art differs from most other investments in that it can become part of one's everyday life. It can inspire, challenge, educate, and bring joy. For that reason, I would not invest only in art from which I expect a financial return, but above all in works with which I would genuinely want to live and that provide the "psychic returns" or "emotional dividends" discussed earlier.

Art is More Than an Investment
In my view, anyone who regards art exclusively as a financial investment overlooks an essential part of its value. Art can preserve wealth, appreciate in value, and contribute to diversification. At the same time, however, it creates cultural, social, and personal value that cannot be captured by financial return figures alone.

Ask yourself: Why do I want to invest in art?

The Center for Arts Management team would like to thank Dr. Laura Johanna Noll for this insightful interview and valuable perspective.