What About Colorless Diamonds? Are They A Good Investment?

In all honesty, fancy color diamonds are my specialty, not colorless diamonds, and the two kinds of diamonds are very different in many ways. Many have asked me what my opinion is on colorless diamonds, so I decided to do a short review on what my research shows.
It is interesting to note that when it comes to investing in diamonds, it turns out that there are many common areas between fancy color diamonds and colorless diamonds in terms of the importance of certain characteristics qualifying the diamond as an investment.

Rarity of the Diamond

A diamond has to be rare enough that demand should always be greater than supply. That is the factor that will allow prices to go up for that specific diamond over time. If we look at fancy color diamonds, which make up 0.01% of the total diamond market, we can say that overall, fancy color diamond prices will go up over time. Some will increase more than others, but this implies that within fancy color diamonds, some are rarer than others, although all the colors are somewhat rare.

In colorless diamonds, we need to choose those diamonds that are the rarest of that type. There are many opinions out there by various industry authorities as to which ones are the scarcest. Some claim that all colorless diamonds are rare, while others further filter and claim that diamonds with certain color grades, clarities and sizes are worthy of investing in. Our opinion is that investors should only invest in the rarest of the rare, which we will detail below.

The 4 C’s Combination for an Investment Diamond

We know that a colorless diamond is graded using the 4 C’s (Color, Carat weight, Clarity, and Cut). Some are of the opinion that an investment diamond should be at least 1 carat in weight, be in the D-G color grade range, in the F-VS1 clarity range, and should be triple X (3EX in the cut category). Our opinion is that this choice is not strict enough to define a truly rare diamond. We believe that an investor should invest in a minimum carat size of 3 carats for a colorless diamond, have its color graded only in the D-F range, have a F – VVS2 clarity, and have a 3EX cut grade. This combination will ensure you have the ultimate 4 C’s combination.

The higher you choose within the combination of the 4 C’s, the more value the diamond will keep and increase over a long period of time. A 10 carat, D color, Flawless (or even Internally Flawless) colorless diamond with a 3 EX cut grade is exponentially rarer than a 3 carat size with the same color and clarity grades. It is all about comparison, which is why it is important to choose the rarest characteristics of all.

gia colorless diamond color scale

The colorless diamond color grade scale of D-Z, D being the highest color grade          Image credit: GIA

 

gia diamond clarity scale

The diamond clarity grade scale of Flawless – Included, Flawless being the highest          Image credit: GIA

 

Certification

There are many grading labs in the diamond industry that grade diamonds and their 4 C’s in order to issue official certification. The most famous and respected lab is the Gemological Institute of America (GIA). Other labs include the European Gemological Laboratory (EGL), American Gemological Society (AGS), Diamond High Council (HRD) and International Gemological Institute (IGI). Each one has its own criteria for grading diamonds, and some are stricter than others. The strictest of them all, which is our choice, would be the GIA. There are also labs that are invented by untrustworthy diamond companies in order to trick customers into thinking that the diamond that they are buying is certified by a proper lab. In order to avoid falling for such a scheme, take a moment and google the lab that issued the diamond’s certification. If the lab doesn’t seem legitimate (hardly any search results, no website, shabby website, etc.), then it is because it is not! Always trust only a real laboratory.

The GIA has been around the longest and is the lab that created the grading system and put order and organization into the industry. Some members of the industry have opposed it in the past since it allowed potential buyers rely on an independent 3rd party to let them know the quality of diamonds, and dealers wanted to maximize their own profits in the sales process and exclude this outside influence. From an investor’s perspective, you absolutely want a third party to authenticate the diamond and not to trust only the word of the person who is selling it to you. You are entitled to the security of knowing that the diamond in which you are investing is what you expect it to be!

 

a genuine gia certificate

A genuine GIA certificate

 

Investment Vs. Business

If we were to review price fluctuations over 2016 according to the Rapaport index, the average price of a 0.30 carat diamond increased 0.44%, that of a 0.50 carat has decreased by 1.44%, a 1 carat diamond has decreased by 5.13%, and a 3 carat diamond has decreased 8.33% on average. What does that mean? From a business perspective, this means that there was on average a higher demand for smaller diamonds during 2016 than for larger diamonds. As we mentioned above, demand and supply dictates what the prices of diamonds will be. We know that as consumers are more conscious of their budget, and still desire to buy diamonds, they are willing to spend less on jewelry and so the smaller, less expensive diamonds are more in demand.

 

RAPI for 2016

The RAPI for 2016          Image credit: Rapaport

 

However, diamonds for investment need to be approached in a different way. Investment diamonds should be evaluated with a longer period of time in mind, a minimum of 5 years. The decision making process for buying an investment diamond rather than simply buying jewelry is different, and the attributes chosen should be stricter. Even though a 3 carat diamond lost more of a value over 2016, this only represents an average price movement of the full 4 C’s spectrum for it. It may have decreased over 2016 but its overall performance will be different when considering it over a 5-year span. The price decline may also be attributed to lower grade, lower color diamond, and therefor the decline is further skewed.

 

How to Buy a Colorless Diamond for Investment

Whether or not you are familiar with the different channels that are available for purchasing diamonds, chances are that you are aware that many retailers sell diamonds and often label them as “diamonds for investment”. Whether or not these diamonds would qualify, it is important to evaluate the source of the investment. Would you buy shares of corporate stock from Macy’s, or buy bonds or buy into a mutual fund from your local Main Street? The answer is obviously that you would not and the same goes for investment diamonds. You should only buy investment diamonds from a diamond wholesaler or a diamond investment advisor.

If you are going to buy a colorless diamond as an investment, then you are probably aware of the famous Rapaport price list which indicates the exact price levels for all of the different types of colorless diamonds. A retailer will most likely charge you a premium above the diamond’s listed rapaport price because that is how he will earn a profit, but a wholesaler will not charge such a premium but quite the contrary. In order to buy a colorless diamond for an investment, the investor needs to visit at least 3-4 wholesalers and compare their prices to the official price on the Rapaport list. Within your price quotes, choose the one that was offered the lowest, since after all, the diamonds can be measured against each other in order to evaluate price. For example, if you are shopping for a 5 carat D color IF clarity 3 EX cut round brilliant diamond, approach 3-4 wholesalers and choose the one whose price is lowest compared to the Rapaport price list and which has a GIA certificate. Voila!

 

Conclusion

To conclude, the choice of a colorless diamond for investment purposes should be the strictest possible. In our opinion, the 4 C’s should be the minimum of a 3 carat D-F color F-VVS2 clarity, round brilliant, and 3 EX for Cut. The diamond should only be graded by the GIA and not any other lab. For those investors that have more capital to invest, we recommend acquiring a 5 carat or even a 10 carat diamond, which is even rarer (of course, an even bigger diamond will be even rarer), and it should also have the F-IF clarity, D-F color, and remain with the 3 EX cut grade. If we had to compare a 10 carat diamond with a 1 carat diamond, all else being equal, we would see that the amount of 10 carat diamonds available on the market compared to a 1 carat will be considerably fewer. Buy from a trustworthy wholesaler who is offering you a fair price considering the market list.

Ask us any questions about investing in diamonds!

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