Depending on what you read, diamonds are either a fantastic or a terrible investment prospect. The fact is that it is both, even at the same time.
Here are our tips for those thinking about diamonds as an investment opportunity.
1. Get to Grips with the Basics about Diamonds
Learn the 4Cs and what they mean to the valuation of any diamond. It isn’t enough just to know what each C stands for, you need to know how they work in tandem.
2. Play the Long Game
Although traded as a commodity, buying a diamond one day and selling it for a profit the next just doesn’t happen. The second you pay for a diamond, it loses about 40% of its value at least. Getting to the stage where you can turn a profit can take years. This makes diamond investments a little bit of a “buy and forget” exercise, at least temporarily. As a rule, think about spending around $5,000 on a “right diamond” and keep it for at least 5 years to have a chance of making a profit. See below for more of an explanation on which diamonds will appreciate.
3. Have a budget and stick to it
Whether you buy several smaller – by smaller we mean 2ct – diamonds or a couple of larger ones, make sure that you only spend what you can afford to lose. Although not gambling in the traditional sense, there is always an element of that. And the fact that you won’t get your money back any time soon (see above) means you need to only spend money you have.
4. Think about Diversifying
Starting out, focusing on white diamonds is a very sensible thing. After a while, start to look at colored diamonds. The rarer colors can actually appreciate quite quickly in comparison to white diamonds. The other side of it is that they are usually more expensive to begin with.
5. Always buy certified
You need to do this for several reasons. Although the purchase price will be higher, so will your selling price. Without a certificate, you may not even find a buyer at all. A certificate will also be necessary in order to purchase insurance for your diamonds.
6. Think about buying jewelry
Loose diamonds are what we usually think about when we talk about a diamond investment. However, buying complete pieces can pay off too. You will usually pay more for a finished piece, but it usually has a higher immediate sale value. It may also be that the diamond is excellent in a poor piece of jewelry. This may make the purchase price lower than if you were buying the diamond while loose.
7. Stay with the classic cuts
Don’t be tempted to buy marquise, pear, heart or any other fancy cuts. Stick with round brilliant or cushion cuts instead. Fancy cuts are, buy their nature, very much subject to trends and fashions. It’s not impossible that they will fall in price instead of rising. Classic cuts will always be in demand, and so you maximize your chance of a future return.
8. Buy online
Although it goes against the usual practice of seeing what you’re buying, most online dealers will usually have much better prices on their stock. Reputable online stores will usually provide certificates, and you will have all the details of the diamond in front of you before you pay a penny.
9. Or find a wholesale dealer
Buying from a jeweler will probably cost about twice as much as buying from a dealer. Jewelers need to add their own markup on any item, and diamonds are no different. Be warned, though, until you build a relationship with your chosen dealer, he won’t be interested in selling you a single half carat diamond. You will need to put serious money into it initially. The upside is that you will get a lot more for that money. This is changing, though, with some dealers and even manufacturers now selling directly via online stores.
10. Go To The Source
If you think laying out $20-30,000 is just too much, think about buying shares in a diamond company. That way, you can buy and sell more regularly. Of course, as we’ve seen all too regularly, shares can crash quickly and violently. It’s not an option we’d recommend, but it is an option. If you choose to do this, then look for companies which have more than one mine, or who have other interests. This will help to mitigate some market fluctuations.
11. Buy Antique
If we’re honest, all modern diamonds look the same. This is mainly because they are. Modern production techniques mean that differences in weight, color etc. aside, all are very high-quality cut diamonds. Antique diamonds are usually absolutely unique. Cutting methods of the time mean no two are the same, and all were reliant on the skill of the cutter and polisher. The rarity levels of antique diamonds are also much higher than modern stones.
Today, there is an emphasis on getting diamonds to market as quickly as possible. This produces very few truly collectible diamonds. Antique diamonds, though, are hugely popular amongst serious diamond collectors. Buy the right diamond, and you have a chance of making a very nice profit.
Some Closing Notes
Diamond prices are not the transparent entity you may expect. This isn’t oil or corn we’re buying here, where the markets determine the price openly. Shop around and compare prices for identical diamonds.
If you think buying diamonds is difficult, wait until you try selling them. Unless you have a very rare or unusual diamond, your selling price will need to beat those of other dealers. For that’s what you technically will be, a diamond dealer. That’s why it isn’t a game for a day or two, but for many years.
We can’t stress enough that patience is a virtue. If you’re looking for a get rich quick scheme, diamonds isn’t it. The price of diamonds will not spike by 20% this year, next year or the year after. Above-inflation growth isn’t unreasonable to expect, but don’t buy that yacht just yet.