Are Diamonds an Investors Best Friend?
Diamonds may be a girl’s best friend (as the song goes) but they can also be an investor’s friend as well. Investing in diamonds isn’t as difficult as you might think and can add an asset to your portfolio that, historically, has shown great stability. It’s for this reason that we put together a blog today to give you tips about how to invest in diamonds, what types of diamonds and also time and opportunities to look for and even what to look for in a particular diamond.
There are certainly no lack of options when investing in diamonds. You can invest in different stocks, funds and even the pretty little stones themselves. Rio Tinto (RIO), jewelry retailer Tiffany (TIF) and also the online diamond sellers Blue Nile (NILE) are some of the most well established and well-known names in the diamond industry as far as equities are concerned. If you’re talking about funds you have J.P. Morgan Global Natural Resources as well as First State Global Resources. Both of these funds can definitely give you some exposure to diamonds.
Frankly, the best way to get into diamonds as an investment (and also the best way to make a profit) is to buy diamonds directly from a diamond wholesaler. If you don’t have very much experience you should consider asking an expert to help you until you do because you’ll definitely have questions about pricing, the origin of any diamond that you’re thinking of purchasing and also the type of expertise that the jeweler who’s selling the diamond to you has and how long they have been in business.
There are also the 4 C’s of diamond buying, carat weight, clarity, color and cut. These four factors will determine just how good your diamond (or diamonds) are and should be looked at very closely. (Having an expert here to help you while you are learning is again an excellent idea.) By the way, the Gemological Institute of America is the Institute that developed the 4 C grading system and their certificates are well known and accepted internationally.
There are a number of different companies that you can contact that operate essentially as ‘matchmakers’ between suppliers and individual buyers. Most of these are in larger cities like New York and deal with suppliers in the United States but also in Belgium, Israel and India, among others. If you hire one of these companies to help you they will determine what type of diamond that you can afford and, hopefully, lead you to the best diamonds that are available in your investment budget. Keep in mind that there are a large number of participants in the diamond market as well as a wide variety of these precious stones. Some will be better than others and the trick is to get the highest quality that you can for the lowest price. (Isn’t that always the trick?)
Education is the key to any investment opportunity and for diamonds it’s no different. If you’re keen on reading up on the industry there are two trade publications that report on pricing and trends. They are Rapaport.com and Idexonline.com. The industry actually uses the diamond prices that Rapaport publishes as their benchmark. What’s interesting about the diamond market is that it is not as massive as some people think it is. Potential investors would do well to look at as much historical data as possible and also research the future forecast of the diamond market. Once done the niche markets should be researched as pricing as well as liquidity can differ dramatically between the different niches.
Pink diamonds are a great example. From the Argyle mine in Australia they have increased in price because of waning availability from the specific mine that they come from. What this means is that it’s probably too late to invest in them right now. On the other hand the Asian and Indian diamond market, and their propensity for higher clarity diamonds, has grown dramatically over the past decade and forecasters see it continuing to grow. What that means is that investing in near flawless diamonds (the kind both markets like) can be considered a good investment.
Another bit of knowledge that you will find helpful is that the average markup on diamonds that are purchased directly is between 10% to 20% and only for Gemological Institute of America certified diamonds.
When it comes to fancy color diamonds the rules of the game change a bit as these diamonds are more like art than stones. What we mean by this is that, like a painting by a specific artist, the beauty (and thus the price that someone is willing to pay) is in the eye of the beholder. Since these diamonds are incredibly rare their prices do not have a benchmark on the Rapaport Price List like white diamonds do and so a fixed markups trend is not available.
Maybe the most important thing to realize is that diamonds are a physical asset and thus when it comes time to sell there are challenges and logistical hurdles to be handled. If you’re looking for quick liquidity then you probably should not be looking at diamonds as the process of selling them (and the problems) can be compared to selling real estate. With diamonds there is almost always a ‘right’ buyer out there but you need to be patient in order to find them.
Like any investment opportunity, investing in diamonds is something that takes time to learn, research and practice. We hope this blog gave you some insight and valuable information to get started and we wish you good luck with any investment that you make. Please make sure to come back and visit us often for more interesting and (hopefully) valuable financial information. See you then.
Filed under: Investing
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