Diamond Investment Facts - Must read

 Many people think of diamonds as an investment and indeed, they can be very good investments. But before you get carried away, we of Jewelry industry would like to give you a few words of warning about this type of investment. These few words of advice can make the difference between a wise move on your part or a financial disaster.

Diamond Investment Facts

1. White diamonds that cost under $50,000 at a true wholesale price are not rare enough to be considered an investment except in a market that exhibits extreme inflation of the currency. Even then, these less expensive stones may drop dramatically in price when inflation is curbed. If you wish to possibly make a profit and have an easy time re-selling the stone, you have to buy a beautiful and rare enough stone so that there are more buyers than stones available at the time of resale.

2. The most common use of diamonds as an investment is as an insurance policy against the unexpected. High liability professionals buy important diamonds and often hide them offshore. In the case they end up on the wrong end of a civil law suit, they have a private source of wealth which can get them back on their feet. If the courts can't find an asset and don't know about, they cannot confiscate it. If the investment diamond is never used, it can be quietly passed on to the children in the estate.

3. Most people believe that DeBeers controls the market for diamonds and therefore they control the price. DeBeers does, to a great extent, control the distribution and base pricing of rough (uncut) diamonds. They do not, however, control the price of polished diamonds. Polished diamond prices fluctuate up and down and are highly impacted by things such as interest rates and inflation. During the high inflation period of 1978-1980 in the U.S., white diamonds were approximately 4 times more expensive than they are now in the late 1990's.

4. Buying an important or investment diamond at the right price is very critical. The world's diamond community essentially uses the Rapaport Diamond Report as a guide for buying and selling diamonds. No consumer can ever expect to make a profit on a diamond in a few years if they are buying at typical retail prices in stores. Buying a diamond with a GIA diamond grading report and at some kind of discount from the Rapaport wholesale price list (see our section on Rapaport) will help ensure that if diamonds go up over the years to come, the initial bid-ask spread will disappear and a profit may eventually be taken. A reputable dealer should be able to sell you certified diamonds for 5 - 10% over their cost. Any more than that and you are paying too much.

5. While fine, large 5+ carat white diamonds can make very acceptable long term investments, the diamonds with the best appreciation track record are natural fancy color diamonds such as yellow, pink , blue, green, purple and red. Since serious recording of prices started on these stones around 1970, they have never fallen in price. In recessions, they tend to move laterally and in healthy economies or inflationary times they tend to move up in price. Blue diamonds have approximately doubled in price every 5 years, pink diamonds have doubled in price about every 6-7 years and yellow diamonds have doubled in price about every 8-10 years since 1970. These diamonds are hundreds and thousands of times more rare than the finest "D" color diamonds. And, most famous diamonds are not white. Think about it! The Hope is blue and the Tiffany is yellow, just to mention two stones.

6. Top quality diamonds are more liquid than real estate but less liquid than stocks or gold. It will take some time to find a buyer for your stone. Interestingly, the more rare and pricey the stone, the easier it is to resell. There are so few truly magnificent diamonds and there is a lot of money in the world looking for that type of stone. It is much easier to sell a $100,000+ stone than a $1,000 stone.

7. Always buy an important stone with a GIA or EGL certificate. Most large and rare stones have a certificate that was issued at the time of cutting and will be recorded and will stay with it until it is reexamined for a specific reason, the number shop remain the same forever. This is the pedigree for the stone, your assurance of what you are buying and the future owner's assurance of what he/she is buying from you. Don't ever take the jeweler's or dealer's word on the quality of a stone, always insist on certification. Most truly important stones already have GIA or EGL certificates with them.

8. When in doubt, find a specialist in the field to help you.

9. Ask an EXPERT in a specific field that has experience and knowledge in the field.