When it comes to a diversified investment portfolio, many investors look to build in physical commodities, like oil, precious metals and agricultural products like cattle or wheat. Diamonds are also a physical commodity you can invest in, and when you think about it, it’s not hard to see why some investors are tempted to include them.
After all, diamonds are expensive to buy, they’re highly sought after, virtually unbreakable and small enough to store easily. However, there’s more to diamond investing than meets the eye. First, let’s look at some key market insights.
An overview of diamond production and demand
The Diamond Insight Report 2019 by the De Beers Group (a leading diamond mining company) states that global consumer demand for diamonds increased by 2% in 2018 to $76bn (US dollars).
However, the midstream trading environment (the stage where diamonds are cut, polished and made into jewellery) experienced a decline in 2018. De Beers reports that this is down to tightening liquidity, a surplus build-up of smaller, polished diamonds and a decrease in the value of the Indian rupee against the US dollar.
Global rough diamond production declined in 2018 in terms of volume, although the average value of carats rose, leading to a higher global production value than the previous year. De Beers expects that production volumes will continue to decline in the future, as some mines reach the end of life.
For a more in-depth look at these diamond market insights, do check out the report which is linked above.
Diamonds: a volatile market
The diamond market is somewhat opaque, meaning it’s not as clear cut and easy to understand as say gold, which is more transparent. Here’s an example. You can buy gold at a fixed price per carat; however, with diamonds, there are many factors needed to determine a diamond’s worth.
The four Cs come into play – carat, colour, clarity and cut. No two diamonds are the same, so each one’s valuation is quite subjective.
According to the Financial Times, diamonds are a difficult asset class to invest in because diamond prices can vary wildly. Values can be affected by the four Cs, consumer tastes and, quite frankly, what someone is willing to pay.
Diamonds are a similar investment to art. One person might be willing to pay hundreds; another might pay thousands. Diamonds are only an investment if you can resell them for a profit.
Does the value of diamonds increase over time?
Some investors believe that the value of diamonds can increase, slowly, over a very long period of time. However, diamonds are a bit like cars in that they depreciate the moment you buy them from a jeweller.
This is because there is a high markup on them. A diamond ring that costs €2,000 isn’t going to fetch the same price if you tried to resell it back to the store you bought it from the next month.
Rare, vintage or exceptional diamonds tend to be more favourable as an investment. Fancy coloured diamonds, in particular, are seen as a less volatile investment by some investors, as this article from Jeweller Magazine states.
The article goes on to say that pink diamonds have achieved a price-per-carat growth of 12.1% over four years, from 2005 to 2019. However, this is an average figure and takes into account anomaly pieces sold at auction for up to $2 million (US) per carat.
What to consider when buying diamonds
If you intend to buy diamonds as an investment, do plenty of homework before you take the plunge. It’s crucial to be realistic and tread carefully before parting with any money. Remember that you’re unlikely to recoup a profit in the short term. Below are some important considerations to think about if investing in diamonds is something you want to explore.
1. Only buy from a reputable company
Unfortunately, some people have been conned out of their hard-earned cash by falling prey to diamond investment scams. In this news story, 28 investors were fleeced for significant sums of money after believing they were investing in a diamond scheme. They were sent legitimate-looking company brochures and purchase agreements as well as reports that detailed the authenticity of the specific diamonds purchased.
Make sure to buy from an established company, avoid cold callers and steer well clear of any representative that puts pressure on you to invest. For more tips on avoiding investment scams, read these warning signs from Which?
2. Choose the right diamond
Make sure to choose a diamond that will likely hold its value and that you’ll be able to sell in the future. Above all, make sure the diamond you purchase is certified and is good on the diamond 4 C’s. A diamond certificate is a report put together by a team of gemmologists. Three main bodies provide certification; the GIA, HRD and IGI.
The shape of the diamond also plays a part in resale. The round diamond, for example, is a popular cut that is in high demand today and will likely appeal to a broad audience. Buy the best quality diamond that you can afford – and that doesn’t mean buying the biggest one available to you. Don’t buy a diamond that will only appeal to a select few because this will limit your resale audience.
3. Get the most bling for your buck
As touched on above, buying diamonds from a retailer means that there will likely be a high-profit margin involved. Also, consider that you will probably pay tax on your investment. At 20% VAT, this is going to have quite an impact. And if you’re buying a valuable diamond, it’s probably a good idea to get it insured – but this is an expense you’ll need to recoup when it comes to resale.
All that said, it’s essential to shop around and haggle with your diamond dealer to enable you to buy for as low a price as possible.
So, are diamonds worth investing in?
Diamonds are a risky investment. As an investor, you really need to know what to look for in a diamond and make sure that you:
- Follow the diamond market performance regularly.
- Get a great deal when purchasing a diamond.
- Buy from a reputable diamond dealer or specialist broker.
- Buy a diamond that’s likely to hold its value and appeal to a mass resale audience.
- Obtain certification from a legitimate diamond grading body.
- Are prepared to sit tight for several years before any profit is realised.
The best approach when buying diamonds is to buy a piece of jewellery that you will love to wear for the long term and perhaps pass down to future generations. After all, diamonds should be worn!
Much-loved diamond jewellery often has sentimental value that simply can’t be measured. If that piece of jewellery happens to be worth money in the future, then that’s a nice bonus.
Explore diamond jewellery
We work very closely with eight of the world’s leading diamond dealers and diamond brokers. This allows us to offer top-quality, certified diamonds at highly discounted prices compared to many other diamond retailers.
We sell a range of beautiful diamond jewellery, including engagement and eternity rings, earrings, necklaces and bracelets. We can also create custom-made diamond rings for buyers looking to create something entirely unique and special to them. .
*Disclaimer: Please note that this article is based on opinion and third-party source. It does not represent investment or financial advice. Always seek advice from a financial professional before making any investment decisions.