How to invest in diamonds: crash course

//How to invest in diamonds: crash course

How to invest in diamonds: crash course

Diamonds Are a Girl’s Best Friend, or so says a famous jazz song by Carol Channing. Diamonds, the gems that have symbolized love and marriage for decades, are beginning to attract wealthy investors as a commodity investment with potentially high returns and have, even more than gold, always evoked a strong charm towards men. Like for gold, diamonds get their value thanks to their difficulty of extraction and they mantain a high and stable price because not many are extracted each year.

You might have heard of a Sotheby’s sale of a 59.6-carat pink diamond for a staggering $71 million in April 2017 after only 5 minutes of the auction’s start. The question is, how do you start investing in diamonds?

Learn the basics (at least)

The very first step is to learn the diamond language, the 4 Cs:

  • Color: a chemically pure and structurally perfect diamond has no hue, like a drop of pure water;
  • Clarity: refers to the absence of Inclusions and Blemishes that can occour during the formation of the diamonds;
  • Cut: how well a diamond’s facets transmit light and sparkle;
  • Carat weight: A metric “carat” is defined as 200 milligrams.

You can read more on http://4cs.gia.edu/.

How risky are diamonds investments?

Like many raw materials it depends on production and inventory but on the medium-long run the value increases and like said diamonds are now considered a good alternative to gold or real estates. Experts recommend a max of 5-10% of your portfolio.  

Where to buy diamonds?

Some banks offer the possibility to buy diamonds through 3rd parties specialized in the field but prices are often higher than the market therefore it is always better to utilize alternative vendors such as online or wholesale retailers.

What type of diamonds should you buy?

Experts suggest to limit your choice on diamonds between 0,5 and 2 carat. Diamonds under 0,5 carat don’t require a grading report while above 2 carat stones are more rare thus it is harder to find a buyer. Make sure to get a certificate from a gemological institute that testifies the quality and characteristics (the 4 Cs discussed above).

Colored Diamonds

Only about 1 in every 10,000 diamonds are colored, and the coloration is caused by trace amounts of certain elements within the stone. The exception are red and pink diamonds that are created as a result of extreme heat and pressure during their formation. Colored diamonds represent a very a good form of investment because the supply is limited  and the demand is constantly rising.

Mounted or Loose

Most likely when you wish to sell your diamond the person who buys it has its own agenda for it (e.g investment or ring).  This is why you would probably get zero value for your setting and only the diamond itself will be calculated for assessing the value. Nonetheless it will be easier for a buyer to imagine how a diamond looks when mounted (and it will help to sell the diamond) so find the right balance.

Diversify your diamonds

In diamond investment like in other investments it may be wise to diversify your “portfolio”. If you had set your diamond investment budget on $20,000 then you should consider buying 2 x $10,000 diamonds or even split it into three. On top of that, don’t buy two / three diamonds of the same type.

Transactions Costs and Bid/Ask Spreads

Reasonable investment diamond transaction costs involving physical delivery of the diamonds can run in the 2 percent to 5 percent range depending on the size of the investment. The Rapaport Group is developing a new investment model that will provide investment diamond opportunities that do not require the physical delivery of the diamonds to investors at a one half percent (0.005) transaction cost.

Another way is to create a portfolio on your own

Although at the time of writing there is no alternative ETF that specializes in diamonds, you can still invest in companies related to them. For example, approximately 70% of the diamond mining industry is held by four major companies: De Beers, Alrosa, Rio Tinto and BHP Billiton. You can also invest in the diamond jewelry companies such as Tiffany and Harry Winston which is a combination of a mining company and a retailer.

By | 2018-01-03T22:13:01+00:00 January 3rd, 2018|Investing|Comments Off on How to invest in diamonds: crash course

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