Are diamonds a good investment option and should you invest in them?
Before you get carried away thinking about these two questions, here’s what you need to remember: the key to building wealth is investing in the right resources.
In today’s world, everyone is on the lookout for the best investment strategies to achieve their long term financial goals. And one such investment strategy is investing in precious stones!
Looking at the challenges faced by the economy, several people acknowledge the importance of investing in physical commodities. Therefore, we have seen an increase in the value of precious metals like gold and silver. Similarly, precious stones, like diamonds have also seen a steady rise in their value.
As per the Rapaport Diamond Trade Index, the value of 3-carat diamonds rose by 145% from 1999 to 2011. Whereas, the value of 5-carat diamonds rose by 171%. This clearly shows how profitable investing in diamonds can be.
In this article, you will learn everything about diamonds as an investment and if you should be investing in them or not.
Investing in Diamonds – The Pros
We have seen a rise in the purchase of diamonds as an investment in recent years. Many people have shifted from gold to diamond because they consider diamond to be a better investment opportunity than the former.
Here’s what makes diamonds an excellent investment option:
First things first, diamonds are considered a good investment because of their size. Diamonds don’t take up as much space as gold. In fact, diamonds have been used as a means for money transfer for centuries. A trinket of diamond costs much more than gold of the same size. This makes diamonds a more feasible investment option as compared to other precious metals.
Durability is another great advantage of having diamonds as an investment option. Diamonds are the hardest stone on earth. Nothing will break it. The durability of diamonds also makes it a good investment option. You just have to be careful about not losing it.
Many insurance companies offer insurance for diamonds. If you have second thoughts about the safety of your diamonds, it is best to find an insurance company and get them insured.
Diamonds can also be moved from one place to another easily. They may be small in size, which makes them easy to move, but they are worth a lot. Ease of mobility also makes diamonds a great option for investment.
Diamonds appreciate in times of inflation. This helps keep your investment safe even if their value doesn’t increase significantly. This is why many people buy diamonds, not for investment purposes, but just to put some money aside for a rainy day.
6. Can be Worn
As mentioned before, diamonds are highly durable. This means that you don’t have to keep them locked in the safe. You can wear them whenever you want without any fear that they might wear off. Thus, you can enjoy it while you have it.
7. It’s a Physical Commodity
Diamonds are considered as physical commodities. They can be touched and can even be worn, unlike other investments like financial items and stocks. This gives them a psychological edge over other things that one may invest in.
Investing in Diamonds – The Cons
Just like everything else, there are some cons associated with investing in diamonds. Here are some risks that you should be wary of when planning to invest in diamonds.
1. Lack of Transparency in Price
Many people don’t invest in diamonds because of a lack of proper price index. There is a price index one can follow with gold and other investment commodities. There isn’t any when it comes to diamonds. The price of diamonds depends on market demand and supply rule.
2. Dearth of Tradability
Lack of tradability is another risk of investing in diamonds. It is much easier to buy diamonds as compared to selling it. Furthermore, people and companies will also not be willing to pay you the price that you bought the diamonds for initially.
3. Long-Term Investment
If you are looking for quick ROIs, then diamonds may not be the right choice. It’s great for those who are ready to wait for the gains. Diamonds can be made a part of the long-term portfolio. However, it isn’t the best choice for short-term investments.
Things to Keep in Mind Before Investing in Diamonds
With the above discussion, it is clear that diamonds are a good investment as long as they make a small part of your investment portfolio. You can add it in your alternative investment category and reap its benefits if you follow the basic investment guidelines.
Here are some important things to keep in mind when investing in diamonds.
1. Learn the Basics
You must learn the basics of diamonds before you invest in them. Essentially, there are 4 Cs of diamonds you need to remember. These are:
A) Clarity: A diamond with fewer imperfections has a higher clarity.
B) Cut: The brilliance of a diamond is measured by its cut. A diamond with a better cut sparkles more than one with a bad cut.
C) Carat: The weight of the diamond is measured in carats.
D) Color: is a measure of the presence of color in the diamond. Colorless or white diamonds have more value than colored ones.
2. Set a Budget
As mentioned before, your entire investment portfolio must not be made of diamonds. Set a budget for your diamond investment. You will require a high amount for the initial investment, however, you must stick to your budget and make purchases within it.
3. Diversify Your Diamonds Portfolio
As cliché as it may sound, but you shouldn’t put all your eggs in the same basket. If you have an investment budget of $30,000, consider buying two $15,000 diamonds or three $10,000 diamonds. Also, try to invest in different varieties of diamonds instead of buying three of the same kind.
The prices of different diamonds rise and fall differently. Therefore, it is best to diversify your diamonds portfolio. This way, you can also liquidate a part of your investment portfolio quickly in case you need funds.
4. Compare Prices
As mentioned before, there is no set standard when it comes to the price of diamonds. However, you must do your research before investing in them. Search for different online retailers and compare the prices they are offering for the same kind of diamond. This will give you an idea if you are paying the right amount for the diamonds you are purchasing.
5. Buy Logically
While you should invest in a rare diamond, also think logically if you will be able to sell it or not when the time comes. Some rare diamonds, like a pink or blue diamond, may be in a league of their own. However, it is best to choose a round or a cushion cut diamond than one with a marquise cut, even if you are buying a pink diamond.
Think logically and don’t end up buying something that no one may be willing to purchase later.
6. Buy Certified Diamonds Only
Always buy GIA certified diamonds. Do not trust what the seller says and ask for a GIA certificate right away. Your buyers will also ask you for the GIA certificate when they buy the diamonds from you. Don’t fall for any scams and buy certified diamonds only.
7. Buy Directly from Manufacturers
If you want to buy cheap and high-quality diamonds, then it is best to buy directly from the manufacturers. Skip the mediators and buy as high up the chain as you can. This will give you high-quality and less expensive diamonds.
8. Ask Questions
Don’t be shy of asking the seller questions. Ask as many questions as you have in mind. Talk to consultants and experts before you make any investments in diamonds. If you know someone who has invested in diamonds, get their expert advice.
Avoid These Mistakes When Investing in Diamonds
Here are some mistakes that you should avoid when investing in diamonds:
1. Don’t Expect Early Returns
As mentioned before, diamonds are great for long-term investments. However, if you are looking for quick returns, then investing in diamonds may not be the right choice for you.
2. Don’t Pay Too Much
Another common mistake that people make when investing in diamonds is paying too much. The primary rule of investment is to buy low and sell high. While you cannot get diamonds at cheap rates, you shouldn’t have to overpay for them either.
3. Don’t Buy the Wrong Diamond
As mentioned before, you must only buy certified diamonds. This will make a safe investment, and you will also not be getting low-quality diamonds at a high price.
So, Are Diamonds a Good Investment?
Just like any other investment, investing in diamonds also comes with its pros and cons. In addition, investing in diamonds like all other types of investments comes with its own risk. Therefore, you must seek some expert advice and make a rational decision before investing in this precious stone.