One way to consider "hard assets" is as a kind of alternative global currency. In times of economic or political distress, many alternative hard assets - gold, gemstones, collectibles - have been embraced by investors in a flight to quality. Hard assets like art have been prized historically and have come to represent a rare, timeless asset.

But is it an investment?

Unlike commodities, rare art is not fungible. One painting cannot be substituted for another. The Mona Lisa cannot be replaced by a Michelangelo. Vincent Van Gogh's Sunflowers is not a substitute for Vermeer's Girl with a Pearl Earring. I cannot make a replica of Renoir's famous Boating Party painting and have everyone agree it should be worth as much as the original. It's this very uniqueness that gives an art asset value.

Like any other traded good, the value of fine art is determined by supply and demand, but the supply, perhaps more than any other market, is entirely finite and known. The Old Masters are dead and gone.

"Well," (I imagine you saying), "that's all well and good. But what's that got to do with me?"

Maybe more than you think.

Why Buy Art?

Let's hit some of the high spots on why you might consider art as an investment:

It's Beautiful

Unlike stocks, bonds, private equity and even commodities, art assets can be enjoyed. Even though your stock may go to zero and you've got nothing to show for it except a worthless piece of paper, you'll always be able to enjoy the beauty of a wonderful piece of art on your wall. You can pass it down to your children or grandchildren, loan it to a gallery or museum for a show or just admire and learn about history, politics, society from it. You won't find a security as stimulating or satisfying.

It Appreciates

Art should be purchased out of love, not greed. However, there have been numerous examples of art that has been used as an investment. Perhaps the most famous is the British Railway Pension Fund.

In 1974, the British Railway Pension Trust invested $70 million to purchase over 2,000 works of art. These objects included paintings, sculpture, drawings, decorative art and other assets of beauty and rarity. The art was sold at auctions by Sotheby's in the 1980s resulting in a compound annual rate of return of 11.3%, making this a very successful investment for the Trust. These returns are consistent with long-term studies of art market returns. Art has slightly under-performed the S&P over the long term but outperformed Treasury bills and cash.

It's Different

It's axiomatic among commodities investors that diversification - particularly uncorrelated diversification - is a good thing.

Art is remarkably uncorrelated with traditional assets, and is negatively correlated with bonds and U.S. equities over the last 25-30 years. This alone makes it worthy of consideration for investment:

Correlation 1980-2006 (General Art Basket)

Source: Art as a Financial Investment

It Holds Value

Throughout history, masterpieces, rare gems, gold and other stores of value were considered the treasures of a culture and a civilization. But this value is not as intangible as it might seem for an investor used to holding corn and soybeans. Today, there are numerous examples of rare assets used as collateral to secure debts.

The Metropolitan Opera recently announced that its famous Chagall murals, "The Triumph of Music" and "The Sources of Music" are being used as collateral against a long-term loan, the size of which is undisclosed. These murals are among the most famous paintings of artist Marc Chagall. Another contemporary artist, photographer Annie Leibovitz, recently sold the rights to all of her past and future images in exchange for a $15 million loan.

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