Is Buying Diamonds a Good Investment?

Posted October 17, 2020 by in Lifestyle
woman's hand showing off diamonds and manicure

Diamonds are often used as investments, and they certainly do have a lot more glamour and excitement to them, especially when compared to something like a share certificate.

But there are both advantages and disadvantages to choosing to invest with diamonds, and all these points should be considered before you commit to investing a substantial sum of money in diamonds:

Is Buying Diamonds a Good Investment?

The Cons

The first issue arises if you will be using the diamonds as a sort of superior foreign currency. While the value of an ounce of gold remains pretty standard all over the world, and is easily weighed for an accurate price to be agreed upon, diamonds are entirely dependent on the jeweler who examines, weighs and grades the diamond to be honest, and to know exactly what he or she is looking at.

Quite aside from selling your diamonds, the place from which you buy them also matters. In some countries, you must pay VAT or capital gains tax on your purchase, and if buying from a high-street retailer, you will be paying their mark-up too.

These costs can eat into your potential profit, seeing you make an overall loss or have to wait an unconscionably long time to recoup your investment.

While some investors do keep a small velvet pouch firmly locked in their safe, (a la the best spy movies!), most people buy diamonds because they love them and want to see their investment glittering around necks and on fingers. This means that loose diamonds must be placed in a setting, usually of precious metal and not cheap.

When the diamond is to be sold, it is often preferable to have the stone loose – which means that the setting is transformed into so much almost worthless scrap. The cost of having the stone set and the small amount of precious metal is then written off from the overall profit on the diamond.

Insuring diamonds is a very expensive business – but the risk of losing a small stone that is worth several thousand dollars is even more so! Investors must choose between ensuring the absolute safety of their stones and not insuring against biting the bullet to offset the high premiums against the eventual realization value of the stone.

Diamonds can lose value as well as gain it, but the historic overall trend is for diamonds to slowly accrue more value, with a ‘short term’ diamond investment usually being about five years for a slender profit to be realized. If you need to cash in your investment to fall in with expenses that have unexpectedly arisen, then you stand a chance of losing all the profit – or even making a loss – on your diamonds.

The current fashion for colored diamonds makes them a tempting prospect, but fashions, as clothing retailers know only too well, come and go. Investing in a pricey colored stone can be a mistake, one that is hard to resell should the trend for fancy stones (as they are called) diminishes as it has done previously. It will almost certainly return in the end, but you could be left holding a disappointing return while you wait for circumstances to favor your colored diamond. 

Pros

Diamonds are small and lightweight, easy to transport in large numbers, with a simple briefcase easily able to carry well over a million dollars in value without the carrier breaking into a sweat. This makes them ideal as an informal, high-value currency.

Diamonds tend to retain their value, as mentioned above, and this value does track in line with inflation, making diamonds a good way of cheating a shaky economy.

As with any diamond purchase, ensure that you only accept diamonds that are high-quality and come with authentic GIA or AGS certification. These two authorities ensure that diamonds bearing their name are as advertised and will give you peace of mind that your investment has not been a mistake.

If you would like to learn about the importance of the 4Cs of diamond, you can take a look at this independent diamond and jewelry forum by Pricescope, where you could find in depth unbiased information on things like clarity, which crucially impacts the diamond price.

The final reason to buy diamonds as an investment is because you love the stones: the sparkle, that hidden fire, the sleek feel and long, rich history of the gems. In this way, you get a good return for your cold hard cash and get to enjoy the icy fire of a thing of beauty at the same time.

However, always seek professional financial advice before making any investment commitments to be able to make a more informed and practical financial decision.