Final answer:
Investing in collectibles like art can provide personal enjoyment and potential for a future higher selling price, though the annual rate of return is generally moderate with varying risk and low liquidity.
Step-by-step explanation:
Understanding the Returns on Collectibles as Tangible Assets
The occupation of art or other collectibles as tangible assets can be a unique form of investment, providing both aesthetic enjoyment and the potential for a higher future selling price. However, it is important to set realistic expectations regarding the annual rate of return on such items. Investment in collectibles like paintings, fine wine, jewelry, and baseball cards can yield moderate returns, factoring in the nonfinancial benefits of owning them such as personal enjoyment or decorative appeal.
Despite the potential for price spikes in the collectibles market, overall, evidence suggests that these assets generally do not generate a higher-than-average rate of return over a long period. The risk involved can vary, ranging from moderate for items like housing, to high for more volatile markets such as gold or baseball cards. Additionally, liquidity is low because selling tangible assets like art can require considerable time and effort.
In summary, while investing in tangible assets can be gratifying personally, the financial gains should be considered moderate, with an understanding of the associated risks and liquidity challenges.