Many people vouch how diamonds aren’t exactly the best investment you can make. That might be true, but if you buy carefully, then at least the diamond will hold its value.
Traditionally, investment-grade diamonds are either big, rare fancy colours or both. This limits professional diamond investing to diamond dealers and the super-rich.
However, when buying a diamond for an engagement ring, or another piece of jewellery, most people don’t stop to think about the real value of the diamond they are buying. Indeed, most people buy diamonds or diamond jewellery at huge markups compared to the wholesale price, and should they need to sell it, they are left with something worth between 20 to 50 per cent of what they paid for it. Our exclusive range of jewellery Sydney will help you find an ideal engagement ring.
However, that needn’t be the case. Buy the right diamond from the correct merchant. You’ll find that the diamond you purchased, whilst on a wholesale level, will be worth less than what you paid for (as you need to allow for the merchant’s markup), will appreciate, and in a few years will be worth more than what you paid for (probably not in real terms though).
So, when looking for a diamond that will at least hold its value, be sure to consider the following:
- Certification – Make sure it’s from one of the three most reputable in the world – GIA, AGS or HRD. Even then, take it to an independent appraiser to double-check the grading.
- Cut – Out of the millions of polished diamonds globally, only a select handful is an ideal cut and, therefore, more comfortable selling.
- Price – Use the internet as a guide. Sure, you may want to buy from a brick and mortar store, but don’t buy a diamond worth 50% of what you are paying. Besides this, most online vendors and brick and mortar shops will give you the same price online as in-store.
- The Dollar – now is one of the best times to buy a diamond. Why? Because the Australian dollar is so high compared to the US dollar, and diamonds are always traded in US dollars. Therefore, if you buy a diamond for US$8000 now for A$10000 (approximate exchange rate at the moment), if the Australian dollar goes down to 70 cents, then your diamond automatically appreciates in Australian dollar terms. Of course, if the Australian dollar goes up to 90 cents, you lose out – but you can always buy another diamond.
What You Need to Know
There has been an increased interest in diamond investing over the last few years. Part of this is due to more investors becoming aware that the price of diamonds reliably increases over time. Still, several other factors have attracted more people to diamond investments.
While there has been an increase in interest, many investors are still wary of diamond investing. Investing in diamonds is more complicated than traditional investment options, and the market is known for its lack of transparency. Also, buying and selling diamonds is not as straightforward as investing in something like gold or silver.
With all of that being said, there is also a lot of upside to diamond investing. You just need to take the time to learn a little about the market before getting started.
Why People Invest in Diamonds
There are several reasons why some people may choose to invest in diamonds. One of the first reasons is that they maintain their value over time. If you buy a diamond and hold on to it for a while, it is almost sure that it will be worth more when you sell it.
As another point, demand for diamonds has been growing while supplies have been decreasing. With more people buying diamonds than ever before and the reserves of suppliers going down, it is expected that prices will continue to increase.
Diamonds are also a good store of value. With a diamond, you can hold a lot of value in a tiny package. Along with that, they do not degrade or require expensive maintenance to retain their value. As long as you store them in a safe place, diamonds will have their value even if you don’t pay any attention to them.
Valuation is one of the most significant barriers for most people who are interested in diamond investing. Most of us know diamonds have value, but we know very little about what makes one diamond more valuable than another. Our exclusive range of jewellery Sydney will help you find an ideal engagement ring.
The first step to understanding diamond valuation is learning about the 4 Cs: carat, colour, clarity, and cut.
The weight is the most straightforward factor in valuing a diamond. With diamonds, weights are measured in carats, and below that, you also have points. A carat is 200 milligrams and a moment in .01 of a carat. As an example, a 25-point diamond is a quarter of a carat.
The colour-grading scale runs from D to Z. D is the grade with the least amount of colour, and Z is the grade with the deepest hues. When it comes to investing in diamonds, less paint is better.
The only time more colour increases the value is when you consider fancy colour diamonds. With that said, this is a tiny percentage of the diamonds on the market, and they are not as good for investment purposes.
The clarity scale indicates the number and appearance of blemishes in a diamond. If no inclusions can be seen at 10x magnification, the diamond is rated as flawless. However, ten other grades run from internally flawless to included.
The cut refers to the design of the diamond and the way it interacts with light. The quality of a diamond’s cut is mainly due to the skill with which it was shaped. The amount can be graded on a scale that goes from excellent to low.
The Risk of Diamond Investing
Diamonds can be a good investment, but they do come with some risks. One of the most significant issues is pricing and valuation. When you buy gold, you can quickly look up prices and buy gold bullion with a standardised value. With diamonds, the pricing is not as transparent.
To account for this, you should only buy from reputable dealers with a good reputation. Furthermore, you should insist upon some type of certificate to verify the value of the stone. Several groups offer diamond certification, but two of the best are the GIA and the AGS.
Another issue is that diamonds are not as liquid as many other investment options. Selling diamonds can be difficult and time-consuming, so they are not the best option if you need to turn the investment into cash in a hurry.
How to Invest in Diamonds
When you invest in diamonds, you are buying the physical stones to hold onto for sale at a future date. This means finding a dealer and buying diamonds. However, you don’t want to buy from the first dealer you find. Try to compare prices between several dealers to find the best price. If you shop online, you could discover several dealers that you will be able to reach from the comfort of your home.
If you are interested in having some exposure to the market but don’t want to own the stones, you could consider an investment product with some connection to the industry. As an example, stocks in a mining company could be one option. You could also look for an ETF that focuses on businesses in the industry.
Are diamonds a good investment?
On paper, diamonds make excellent investment sense. They have high intrinsic value, they’re always in demand, and they last forever – plus, they’re small, portable and easy to store (unlike that priceless Ming vase you just had to have at auction). Like most gems and precious metals, past performance shows that they will increase in value over time.
In reality, however, diamonds have very sketchy investment potential. One of the main reasons for this is that diamonds come in very inconvenient packages. Unlike gold – which is valued by weight because let’s face it, one block of gold is pretty much the same as every other gold block – diamonds don’t have a universal price per gram. When no two stones are the same, every diamond has to be valued on its merits and, most of the time, that valuation is going to be somewhat subjective. This means choosing which diamond to buy in the first place can be the trickiest part.
Despite this, many people are investing in diamonds – more so now that traditional investment opportunities are failing to deliver the goods. Low-interest rates and falling markets make investing in diamonds look very appealing. But how do you go about buying a diamond for investment, and how can you be sure of making a good return?
The truth is we’d never encourage anyone to buy a diamond as an investment without full awareness of the risks and potential pitfalls. With that in mind, we’ve identified three of the most common mistakes people make when they invest in diamonds.
Paying too much
When investing in anything, the mantra ‘Buy low, sell high’ will serve you well. When it comes to diamonds, however, ‘buying low’ is harder than it looks.
First, there’s tax. Unless you’re buying from a non-VAT area or through a VAT registered company, you’re going to lose 20% of your investment instantly. That means your diamond will need to grow in value by 20% for you to break even merely.
Second, there’s the retailer mark-up. This can vary from store to store, so it’s crucial to shop around and make sure that you’re buying at the most competitive price. We can’t tell you how many stories we’ve heard about people trying to sell their ‘investment’ diamonds back to the trade – only to realise they were stung entirely on the original purchase price. On the bright side, on-line retailers have transformed the diamond market, so if you buy from a reputable jeweller working on shallow margins, you can get a stunning diamond for close to wholesale prices. Check out our extensive range of jewellery Sydney at Temple & Grace
Third, there are hidden costs – such as the price of the setting. As cool as it would be to have a pouch of loose diamonds locked in a safe (perhaps concealed behind an ornate painting), most people want to enjoy their diamonds, which means having them mounted in a setting. Yet when it’s time to sell, the environment will most likely only be worth scrap metal prices. And what about insurance? If your diamond jewellery is valuable enough to be an investment, it should probably be insured – but that’s another expense you’ll need to recoup when you sell.
Expecting too much
Investing in diamonds is possibly the worst get-rich-quick scheme in the world. Diamonds are a commodity, and like any commodity, their value can go down as well as up. On the whole, based on past performance, they go up – just very, very slowly. It’s virtually impossible to profit in the short term, so it’s not only realistic to buy a diamond and expect to sell it for a profit after five years.
This means when you invest in diamonds, your money is going to be locked up for a while (albeit in an adorable sparkly package), so it’s essential to be sure that you a) want to invest it in this way and b) can afford to. If you need to sell early to get your money back, you’re highly likely to get a lot less than you spent in the first place (see ‘Paying too much’ above).
At the very least, buy something you love. That way you can enjoy it while you’ve got it and you won’t be disappointed if it doesn’t earn you as much in the long-run as you hoped.
Buying the wrong sort of diamond
The final hurdle when buying a diamond as an investment – and the one where most buyers fail – is knowing which diamonds are worth investing in. Some diamonds are more comfortable to resell and are more likely to fetch a better price, so investing in one of these will make your job a lot easier in the future.
The most important thing is to buy certified diamonds. And when we say certified, we mean independently certified, not one of those highly questionable certificates approved by the shop you are buying from. This is true whenever you buy a diamond, whether it’s as an investment or as an engagement ring, for so many reasons. A certified diamond is far easier to resell than one that hasn’t been independently certified and will be more desirable – especially if it’s approved by one of the most highly respected labs (GIA and AGS are best). Keep the certificate in a safe place but separate from the diamond itself, just in case.
The shape of the diamond can also be a factor. Round brilliant is the most popular diamond shape (about three-quarters of all diamonds sold are round), so investing in a round brilliant diamond will give you access to a bigger resale market. If you’d instead not buy a round, opt for one of the other popular shapes, such as the Princess cut… but really, just buy a round diamond!
Always buy the best quality – that means a diamond with an Excellent cut grade and above-average colour and clarity. However, don’t be fooled into thinking you have to buy the most significant, best quality diamond in the world. The opposite is true. An extremely high-spec diamond will only be of interest to a select few buyers (those of bulging wallets and gold-plated mansions) and will be harder to sell on. Instead, you could aim to buy a high-quality diamond of mass-market appeal – again; this will be more desirable to both trade buyers and private individuals.
And finally, if any tries to sell you Chocolate, Champagne or Cognac diamond for a premium, run for the hills! These are marketing terms for “So discoloured and brown, that they are worthless”.
Avoiding the pitfalls
You might now be thinking that it’s not worth investing in diamonds – and if you want to buy diamonds solely as an investment, you’d be right. You’d be better off investing in almost anything else. But if you happen to want a nice piece of diamond jewellery AND you’d quite like to buy something that will increase in value over the long-term, then, by all means, buy diamonds. Just be sure to follow the Diamond Rules (they’re so much sparklier than golden ones):
- Buy at the lowest price you can, without VAT if possible.
- Buy high quality, independently certified diamond in a popular shape.
- Think about when you will want to sell – and how
- Buy something you love
Diamond investing can offer a lot of value, but you need to commit to it if you succeed. Diamonds are a long-term investment, and you have to be willing to dedicate time to learn about diamonds. You also have to be careful about the dealers you buy from, and you need to be patient when it comes time to sell. If you lack the necessary commitment or patience, then diamond investing might not be the right option for you.