The Long-Term Returns to Durable Assets
Abstract
I study the returns to investments in durable assets since the start of the twentieth century. These assets are generally characterized by relatively low capital gains and substantial price fluctuations. The rate of value appreciation has been more pronounced for collectibles, but transaction costs are very high in such markets as well. However, a rental income yield can add substantially to the returns on housing and land, and likewise owners of collectibles may receive a significant emotional dividend. Because of the lack of such an income or utility stream, gold, silver, and diamonds appear to have been particularly bad long-term investments (at least if not held in the form of jewelry). Finally, durable assets are unlikely to be good inflation hedges, but they may still help diversifying a portfolio because of the imperfect correlations with financial assets.