Art prices have boomed in recent years as celebrities, city bankers, Russian oligarchs, hedge fund and private equity managers have flooded into the market. At a recent sale of contemporary art at Sotheby’s, a painting by German artist Gerhard Richter sold for £7.9m, more than three times its pre-sale estimate of £2.5m.

For investors, art is often promoted as an ‘uncorrelated’ investment which performs differently to mainstream financial assets such as shares or property and can therefore help to protect against the uncertainties and volatility of the stock market. But this argument should be treated with some caution.

As Peter Temple, author of Superhobby Investing, points out “The art market is undeniably cyclical in character and appears to move in sympathy with trends in the stock market.” However, unlike stocks and shares, you can at least get some pleasure out of having the art on your wall even if prices fall.

You don’t have to be wealthy to buy art. Regular art fairs such as Frieze and the Affordable Art Fair provide access to modestly priced pieces of contemporary art. Nicky Wheeler, director of the Affordable Art Fair, which takes place biannually in London, says “Our fairs offer two possible alternatives for potential investors. Firstly, there are original etchings and prints by well established artists on sale, such as limited screen prints by Sir Peter Blake which were selling at the March fair for around £1100 and then there are works by new emerging artists.”

Among recent art graduates and other emerging artists she points out that a few years ago works by Antony Micallef were being sold at the fairs for a few hundred pounds. “Now his paintings are being bought by people like Brad Pitt and Jude Law for thousands” she says.

Alan Montgomery, a contemporary art specialist at auctioneers Bonhams points out that “One of the hotspots at the moment is ‘urban art’ with works by Banksy selling at up to three times the pre-sale estimate.” But Montgomery says “Trying to find the next big emerging artist or exciting new movement is never going to be easy.”

Apart from art fairs, galleries are a good place to find out more about modern art trends and new talent. But they tend to be expensive places to buy because there will be a significant mark up to cover the gallery’s costs. Or you could go to an auction and buy works by internationally established artists such as signed Andy Warhol prints which will start at around £5,000 in Bonhams April sale. But don’t forget there will be a buyer’s premium to pay – 20% at London salerooms, so your investment will have to rise in value considerably just to cover your costs.

If you are serious about investment and have a reasonably large budget, you may be better off using the services of professional art advisers, such as London-based Seymour Management. Managing director Spencer Ewan explains “When people make a large purchase such as a property, they have an independent survey done. But when they are buying art they tend to rely on dealers and auctioneers who are basically acting in their own interests in order to sell their stock. We are independent and work on behalf of clients, researching and finding the right pieces for them and helping them buy at the right price.”

Another alternative is to invest via an art fund. Anders Petterson of ArtTactic, the London art research company, says “The Fine Art Fund is probably the most successful although very little is known about the performance.” Another is The Art Trading Fund, set up in 2007, which focuses on generating returns from art investments within a 12 month period. Spokesman Chris Carlson says the fund seeks to exploit “inefficiencies” within the art market. It currently invests in impressionist, post-impressionist, modern and contemporary art. The minimum investment is £100,000. Costs are 2% per annum and a performance fee of 20% of profits achieved above LIBOR.

But is now a good time to invest? According to a survey published in January by ArtTactic there was a 40% drop in confidence in the contemporary art market last year, while in ArtTactic’s March ‘Rawfacts’ bulletin, it points out that about 60% of lots in recent contemporary art auctions in London have failed to achieve their expected prices. However, Chris Carlson of The Art Trading Fund believes that art prices have further to go. He argues “Art maybe heading for a bubble (but) we are not there yet. Art has still to breach its highs of the late 1980s on an inflation adjusted basis; the key yardstick for assessing asset price bubbles.”