Diamonds as investments is a relatively new concept, having been conceived in the last few decades. Colorless diamonds were sold as investments in the 1980s as diamond companies tried to convince buyers that their diamonds would grow in value over time and that these investments would last forever and never fade. While the basic premise of this is true, it is fundamentally flawed because colorless diamonds are a commodity and easily bought and sold – and their prices have barely increased over the last 30 years. However, this does not mean that the concept is one to be dismissed altogether! The truth is that diamonds can be investments, if you have the right one. Much like with art works, if you buy the right one, and wait until the right time to sell, you can realize an enormous profit on your investment. This is only the case with fancy color diamonds, and only for specific colors. The most investment worthy color is red diamonds, followed by blue and pink diamonds. Other colors appeal to diamond collectors, such as purple, orange, and green, but the highest gains are reserved for the first three that we listed.
Is this really true? Consider the facts. The value of blue diamonds has increased 600% over the last 17 years. The prices of blue, red and pink diamonds at auction have continued to rise because demand has steadily increased although supply has begun to decrease. However, it still may be the case that you are not ready to invest in a diamond. Ask yourself the following three questions and if you answer them in the affirmative, then you know that you are ready.
A graphical representation of the increase in value of Fancy Vivid Blue diamonds versus 28 global indices and commodities
A graphical representation of the increase in value of Fancy Intense diamonds versus 28 global indices and commodities
Diamonds are an Alternative Investment. Do You Have a Diversified Portfolio?
Diamonds do not take the place of a properly planned and executed investment portfolio. As experienced financial planners ourselves, one of the facts of which we are most acutely aware is that your investment portfolio needs to reflect an understanding of the behaviors across many markets. In fact, for people with only a certain amount of capital to invest, and who have specific intentions for their investments, diamonds may not even be a good fit. It is important to understand that alternative investments come at the end of a carefully designed plan that reflects all of your own specific requirements. For most people, their investments need to be ones that have quick and simple turnover in case they need the funds.
However, a diamond for investment is meant to be enjoyed, worn and admired, and will eventually be sold at a high rate of return. It is not subject to the same market fluctuations as precious metals. Just like with artworks by celebrated artists, an investment diamond has incredible beauty and value and that is what makes it an attractive investment.
Diamonds Are Almost Always a Long Term Investment. Are You Willing to Wait for the Profits?
The value of investment quality diamonds does increase, but the key to the profits is in the percent increase. Since these diamonds are already priced on the higher end of the spectrum, their increases in value do not seem so large on a year over year basis. However, after at least 5 years (we recommend waiting at least 20), a noticeable price increase can already be noted. If you need your profits in the near future, you may be better off buying into something that will turn over profits quicker. However, if you are liquid enough to wait that long, the ROI is truly remarkable.
Are You Willing to Keep Up to Date with the Diamond Markets?
The difference between diamonds and other investments like bonds, funds, and stocks is that while that information is easily accessible, information on diamond prices is not. Even with the FCRF graphs that track fancy color diamond prices, you will be hard pressed to find out how much your investment diamond is increasing. It requires special relationships with diamond dealers who are willing to disclose for how much your diamond can be sold. A diamond investor cannot count on a daily or even monthly summary of the market. You would need to keep up with price results at auctions and perhaps dig around online at how much similar diamonds to yours are being sold. Are you willing to invest this much effort when you are ready to sell?
You can keep the need for this information at bay for only a time, but when it is time to sell again, you will need to be very involved. It is extremely important to be educated about the fancy color diamond market both when you want to buy your investment and when you are ready to sell.
Remember, many diamond dealers will try to sell you a diamond for investment but if you are not educated as to which diamonds to buy, you can be duped. If a diamond is an investment, it is important that you buy it with a diamond investment expert. After all, would you buy stocks in Coca Cola at your local grocer (who sells Coca Cola) if he told you that he sells their stock? Of course not, you would go to a licensed broker. In the same way, an investment diamond should only be bought from a diamond investment specialist. If you are able to invest in diamonds, you may see growth that is hard to believe.
Got any questions? Please ask us in the comments!
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