How To Build and Protect Wealth from Negative Interest Rate Policy (NIRP)

As recently as yesterday, a prominent Diamond dealer asked me while he was vacationing in Italy if “the negative interest rate will have a positive effect on our business?” My first reaction was that it should, but it will not necessarily. It all depends on consumer and investor sentiment and preference. I went on to tell him about the general effect of a negative interest rate. He wanted to know specifically about investors’ desire to take out money from the banking system and to protect it in the form of a diamond for the next 20 years….A quick no from me about the matter ended the conversation, and he went on to enjoy his trip. So am I right or am I wrong?

Why would investors turn their cash into diamonds and sleep on it for 20 years? We can analyze and see what would entice investors to do so in the first place.

Predicting the Future for Diamonds

No one knows what the future holds, but it is standard practice to always assume that if the future is a reflection of the past, then… then what exactly?

Let’s look at the past 20 years or so (1996-2016) at the global economy as a whole as well as the diamond industry (let’s stick to my specialty in Fancy Color Diamonds).

What global turmoils took place during this span of time? Let’s mark them all down in point form to make it easier:

1997: Asian financial crisis

1998: Russian financial crisis

1999-2002: Argentinian economic crisis

2000: Dot-com bubble burst

2000: Energy Crisis

2007-2008: Financial crisis

2008: Subprime mortgage crisis

2008-2012: Iceland banking crisis

2008-2010: Irish banking crisis

2008-2009: Russian financial crisis

2008-2010: Automotive industry crisis,

2009: European sovereign debt crisis,

2012: Greek Government Debt crisis

2013: Ukranian crisis

2014: Russian financial crisis

2015: Chinese stock market crisis

2016: South America financial crisis

That is a total of 17 economic crises in 20 years…did I miss anything here folks?

The question that we should be asking is: how many trillions of dollars have been lost during this time? How has the stock market performed during this crisis period? How did other commodities do, like gold, platinum, oil? Sure we can also look at the bright side, and say that trillion of dollars in value have also been created, but majority of people want to manage risk as much as possible. Everybody likes making money, but all of them hate losing money much more than making it.

I have written some articles already about the performance of Fancy Color Diamonds in the past, and this question peaked my curiosity again. There are many people asking the same questions repeatedly, and they doubt the wisdom of diversifying their investment portfolio in such a manner.

Although global crises have hit 17 times in the last 20 years (or more…), Fancy Color Diamonds still offer great protection. Rarity is the key factor which contributes to this, although this truth has been known for centuries. Monarchs and nobility were preserving large sums of money by buying jewels centuries ago. Back then, wealth was measured not by theoretical financial models and instruments, but by real assets. Today, diamonds still stand strong as one of the most valuable real asset that exist anywhere in the world, in addition to being the most compact and discreet. Let’s take a look for ourselves by analyzing the data from the last 13 years. We have compared a few points in time by choosing several items (Gold and Platinum) that were sold on the same date and have divided their value by their weight to demonstrate just how much value can be found in only 1 gram of the asset.

 

FVB diamond benchmark Dec 2003

Out of these 5 assets, 1 gram of Fancy Vivid Blue diamond was significantly more valuable than 1 gram of gold, platinum, a colorless diamond, and the Modigliani painting (representing the Art investment world).

 

FVB diamond benchmark Dec 2007

Out of these 5 assets, 1 gram of Fancy Vivid Blue diamond was significantly more valuable than 1 gram of gold, platinum, a colorless diamond, and the Rothko painting (representing the Art investment world).

 

FVB diamond benchmark Dec 2011

Out of these 5 assets, 1 gram of Fancy Vivid Blue diamond was significantly more valuable than 1 gram of gold, platinum, a colorless diamond, and the Picasso painting (representing the Art investment world).

 

FVP diamond benchmark May 2015

Out of these 5 assets, 1 gram of Fancy Vivid Pink diamond was significantly more valuable than 1 gram of gold, platinum, a colorless diamond, and the Picasso painting (representing the Art investment world).

 

FIP 1-2ct 1995-2014

Between 1995 and 2014, the appreciation of a 1-2 carat Fancy Intense Pink diamond was higher than the appreciation of all of the important global indices in the world!

 

FVB 5-10ct 1999-2016

Between 1999 and 2016, the appreciation of a 5-10 carat Fancy Vivid Blue diamond was higher than the appreciation of almost all of the important global indices in the world!

 

In summary: in 1995, Fancy Intense Pink diamonds sold for $10,000 per carat, and today they are selling for about $350,000 per carat, and more in some cases.

Your read that correctly – in 20 years, they appreciated 3400%!

Whether we are looking at the data from just a few comparative assets or many, one trend remains stable: Fancy Color Diamond prices are on the rise because investors that are buying them are fully aware of their growth potential. All it takes is one look how any of these diamonds compared to some of the most treasured and popular assets in existence – COKE (Coca Cola, Warren Buffett’s favorite stock), BRK.A (Berkshire Hathaway), gold, platinum, and even the indices of entire countries! No wonder these diamonds sell for such high prices and require a knowledgeable individual to obtain them!

This begs the question – why aren’t more people aware of and engaging in diamond investments?

If there was more demand for diamond investments, then financial planners and investment professionals would be much more involved in arranging them as part of the investment portfolio. In the meantime, the investment community has no interest in pushing their clients to invest in something they don’t understand, and from which they can’t themselves profit from, yet!. What needs to happen is that investment professionals educate themselves on how they can benefit from this.

The moment the investment community will be able to benefit from the industry, the game will change. Some financial professionals are doing it but no one is doing it on a real large scale basis., yet. The only way to do it is allowing the diamond industry players to be the driving force behind it, not Wall Street (let wall street just finance it). Working together to allow diamantaires to guide Wall Street professionals will bring major investment success and advantage to the surface.

Investing in hard assets such as Fancy Color Diamonds will protect any investor from negative interest rate policies (NIRP). Got any questions about this? Ask in the comments!

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