Final answer:
The purpose of inspecting collectibles as tangible assets encompasses evaluating their potential for service returns and increased future selling price. However, they often entail moderate returns, moderate to high risk, and low liquidity, with no guarantee of sustained above-average returns.
Step-by-step explanation:
Considering the purpose of inspection of tangible assets, such as collectibles including paintings, fine wine, jewelry, antiques, and baseball cards, it's important to recognize that these items can yield returns in two main forms. First is the service or enjoyment you receive from utilizing the item—such as hanging paintings, wearing jewelry, or displaying baseball cards. Second is the potential to sell these items for a higher price than what was originally paid, potentially realizing a capital gain. However, the rate of return on these assets is typically described as moderate, reflecting their enjoyment value more than their investment potential. Additionally, these assets often carry a moderate to high level of risk and tend to be less liquid, requiring more time and effort to convert back into cash compared to traditional investments.
The market for collectibles can experience periods of significant price increases, but these are usually not sustained over long periods, cautioning investors against expecting above-average returns. As with all investments, considering nonfinancial benefits is essential, but so is recognizing risk levels and liquidity challenges associated with tangible asset investment. For example, the real estate market, as evidenced by the U.S. housing market crisis, can illustrate how tangible assets carry varying degrees of risk and liquidity.