Diversification is a word heard often in relation to investing. Most financial advisers would advise that a well rounded portfolio is the key to financial success. In your financial investments, you should ideally carry equal parts of high risk, low risk, long term and short term investments. High risk investments tend to carry the greatest reward when they do pay off. However the likelihood of loss is great. Similarly, low risk reaps lower rewards, but you will usually at least get your initial investment back.

These are basic principles if investing, but how can they pertain to art investing? It is just as important to hold similarly diversified art investments in order to protect your finances. Although art investments don't often come with a label or a rating to tell you whether one is high or low risk, there are ways to know which works should be held as these types of investments.

Most art investing deals with long-term. This is simply because are serves a purpose: to be enjoyed. It is not a fast moving, liquid investment because people tend to hold on to their artwork until they find another they like better. For many people, buying and selling their collection is less about art investing and more about redecorating.

Long-term investment pieces are usually those with a great deal of history behind them already. A painting that is 100 years old and worth $50 million is not likely to double in value in the next year. These artworks generally carry an annual return on investment of 10%-15% per year. For art investing purposes, great works that are this mature already should be held long term to realize any real return.

Short-term art investing is a little more difficult than long-term is, but it is possible. The reason it is sometimes hard to do is because there may not always be a buyer for a piece you are looking to sell right away. For this reason, it is best to choose lower priced items and acquire a large number of them. When it comes to art investing, and really any type of investing, it is generally easier to move lower priced items. If you are in the habit of purchasing paintings of $1 million or more, your short term investments should be in the low thousands.

It is very important to be discerning in your art investing, whether shopping for long or short term investments. Prints often make good short term art investments, especially if you can purchase several copies for the price of one long-term investment purchase. Be sure that the quality is good, each one is numbered and signed, and that there are certificates of authenticity for each. Just because short term art investing involves a lower price range of items does not mean your standards should be lowered.

Commonly in art investing, Long Term purchases will carry a lower risk than Short Term. The items you invest in for a Long Term should be those that have already proven to be quite valuable, so their value is somewhat predictable. For example, Vincent van Gogh painted Irises in 1889. In 1987 it was sold for $54 million dollars. At this point, twenty years later, van Gogh is still dead and not planning to come back anytime soon and take up painting again. Therefore Irises is still just as valuable as it was in 1987, and most likely more valuable now. This painting would make a very good low risk, long term art investment.

On the other hand, there may be a new artist that is barely on the art scene and virtually unknown in the art investing environment. With short term investments, your purchases will be smaller, so you can afford to go with what you like. If you see promise in this new artist, you may want to buy several of his paintings and wait a few months or a year then sell them. If the budding new artist has made a name for himself, you'll make a profit. If he disappeared off the circuit, then you're out that money, but still have your other short term and long term art investing to fall back on.

It is evident that diversification is imperative, whether in art investing, financial investing, or any other type. It is the key to securing your financial future if you plan to make any money investing in art. Hokey as the phrase may be, we've always been taught not to "put all your eggs in one basket" and it is sound advice. Protect your eggs-and your money-while art investing and diversify your portfolio.