INVESTING IN DIAMONDS

Investing in Diamonds: What You Need to Know

Diamonds have long been considered a symbol of wealth and luxury, and many people see them as a potential investment. However, investing in diamonds requires careful consideration and knowledge to avoid potential financial pitfalls. Here are some important facts and tips to help you make informed decisions about diamond investments.

Diamond Investment Facts

  1. Rarity and Value:
    • White diamonds costing under $50,000 at true wholesale prices are generally not rare enough to be considered a strong investment. These stones are only potentially valuable in markets with extreme currency inflation. However, their prices may drop significantly once inflation is under control.
    • To ensure a potential profit and easier resale, invest in beautiful and rare diamonds where the demand exceeds the supply.
  2. Use as an Insurance Policy:
    • High-liability professionals often buy significant diamonds as a safeguard against unexpected financial troubles. Important diamonds can be hidden offshore and, in the event of a lawsuit, remain a private source of wealth. These diamonds can also be quietly passed on to heirs as part of an estate.
  3. Market Control:
    • While De Beers controls the distribution and base pricing of rough diamonds, they do not control the prices of polished diamonds. Polished diamond prices fluctuate based on interest rates and inflation. For example, during the high inflation period of 1978-1980 in the U.S., white diamonds were about four times more expensive than they were in the late 1990s.
  4. Buying at the Right Price:
    • Purchasing an investment diamond at the right price is crucial. The diamond market uses the Rapaport Diamond Report as a pricing guide. Consumers should avoid buying at typical retail prices and instead aim to purchase diamonds with a GIA grading report at a discount from the Rapaport wholesale price list. A reputable dealer should sell certified diamonds for 5-10% over their cost.
  5. Natural Fancy Color Diamonds:
    • Natural fancy color diamonds (yellow, pink, blue, green, purple, and red) have the best appreciation track record. Since serious price recording began in the 1970s, these diamonds have not decreased in value. They tend to hold steady during recessions and increase in price during healthy economic times or inflationary periods. Blue diamonds have approximately doubled in price every five years, pink diamonds every six to seven years, and yellow diamonds every eight to ten years since 1970.
  6. Liquidity:
    • Top-quality diamonds are more liquid than real estate but less liquid than stocks or gold. Selling a diamond can take time, but rarer and more expensive stones are easier to sell. There is significant global demand for truly magnificent diamonds, making it easier to sell a $100,000+ stone than a $1,000 stone.

Tips for Investing in Diamonds

  • Research and Education: Educate yourself about the diamond market, the 4 Cs (cut, color, clarity, carat), and current trends. Understanding these basics will help you make informed decisions.
  • Certification: Always buy diamonds that come with a certification from reputable gemological laboratories like the GIA. This ensures the diamond’s quality and authenticity.
  • Professional Advice: Consult with a specialist or expert in the field of diamonds. Their experience and knowledge can guide you through the investment process and help you avoid common pitfalls.
  • Long-Term Perspective: View diamond investment as a long-term commitment. Prices can fluctuate, and it may take time to realize significant appreciation.
  • Diversification: Like any investment, diversify your portfolio. Do not rely solely on diamonds; consider other investment options to spread risk.

Conclusion

Investing in diamonds can be a lucrative venture if approached with caution and knowledge. Focus on acquiring rare and high-quality diamonds, understand market dynamics, and seek professional advice to navigate the complexities of the diamond market. With the right strategy, diamonds can serve as a valuable addition to your investment portfolio, offering both beauty and financial security.