Are Diamonds A Good Investment?

05/02/2020  — by Kaitlyn Enderley

Diamond Investing: What You Need to Know

By Kaitlyn Enderley

There has been an increased interest in diamond investing over the last few years. Part of this is due to more investors becoming aware of the fact that the price of diamonds reliably increases over time, but there are several other factors that 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. Along with that, 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 certain 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 very small 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 retain their value even if you don’t pay any attention to them.

 

Valuing Diamonds

Valuation is one of the biggest 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. 

The first step to understanding diamond valuation is learning about the 4 Cs: carat, colour, clarity, and cut. 

Carat

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 point in .01 of a carat. As an example, a 25-point diamond is a quarter of a carat.

Colour

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 colour is better. 

The only time more color increases the value is when you consider fancy colour diamonds. With that said, this is a very small percentage of the diamonds on the market, and they are not as good for investment purposes.

Clarity

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, there are ten other grades that run from internally flawless to included. 

Cut

The cut refers to the design of the diamond and the way it interacts with light. The quality of a diamond’s cut is largely due to the skill with which it was shaped. Cut can be graded on a scale that goes from excellent to poor. 

The Risk of Diamond Investing 

Diamonds can be a good investment, but they do come with some risks. One of the biggest issues is with pricing and valuation. When you buy gold, you can easily look up prices and buy gold bullion that has 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 find several dealers that you will be able to compare 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 that has 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.

Diamond investing can offer a lot of value, but it is something you need to commit to if you are going to have success. Diamonds are a long-term investment and you have to be willing to dedicate time to learning 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 commitment or patience that is necessary, then diamond investing might not be the right option for you.

This article does not constitute legal advice.

The opinions expressed in the column above represent the author’s own.

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