Whenever we think “diamonds,” we think expensive, right? And that’s not wrong. If you’ve ever looked into buying these precious stones in any form, you know that prices can be sky-high.
But, does the fact that a diamond is expensive also means that purchasing a diamond will turn out to be a good investment down the line? Is buying a diamond a good investment? Stick around; the answer might surprise you.
Seriously, we have a lot to discuss. Be sure to keep reading!
What Makes A Good Investment?
Before we discuss whether diamonds are a good investment, we need to know the essential characteristics of a good investment, regardless of what it is – diamonds, precious metals, or something else entirely.
We can invest in many different things. However, regardless of what you’re investing in, the goal is always the same – generating income.
But, how do we know if something is going to pay off and if we’re going to get more money out of it than we invested? How do you know if something’s a good investment?
Luckily, some financial experts have covered this topic in an understandable way. And yes, it is understandable enough even for those who are not so versed in this topic.
Here’s what the experts say are the signs of a good investment:
When you’re investing in something with the hopes of getting a return, you are generally faced with some risks. That’s just the reality of it.
However, how significant that risk is and, on the other end, how stable the investment is should determine whether you’ll invest or not.
Before investing your money into any asset – diamonds or otherwise – you need to look into how considerable the risk is vs. how big the reward will probably be and how likely it is that the investment will fall through.
Liquidity is a term used to describe how easy it is to turn an asset into cash. That’s one of the essential qualities an asset can have and something you should always consider when making an investment.
If an asset has low liquidity, it means that it will be much more challenging to sell, which in turn means that the investment return will be lower than you expected.
So, the easier it is to turn an asset into cash, the better.
3. INVESTMENT RETURN
The main point of investing is eventually getting the return in the future. If that’s not your goal, then you’re not investing. The investment’s return is directly linked to the investor’s profit – but it’s not one and the same.
When calculating the potential investment return, you’ll need to look at the exponential growth of that asset and make decisions based on that, among other things, of course.
Remember that every percentage point counts and will have a substantial impact on your wealth in the future.
What Determines A Diamond’s Value?
Several factors influence the price of diamonds. These tiny carbon crystals are so versatile in their potential uses that we cannot name only one thing that makes them so valuable. Here are just a few:
All of these factors play a role in determining how expensive a diamond will be. That, in part, affects the demand and will ultimately determine how good of an investment it is.
Are Diamonds A Good Investment?
For many years – even decades – pure, yellow gold was seen as the best option for investment. And while still somewhat true, investment patterns have changed with time; gold is no longer the holy grail of investment.
So, what about diamonds? They’re expensive, rare, and absolutely stunning. They sure do seem like a good investment – but is that really the case?
Well, the truth is that it depends on who you ask. Experts disagree on this, as they do on many other topics. So, we’re going to present you with both sides of the argument and let you make an informed decision.
Read More: Are Diamonds Worth More Than Gold?
Weighing Out The Pros And Cons
The one thing most experts will be able to agree on is that before buying any diamonds as an investment, you’ll need to look at the pros and cons.
When we’re talking about a physical investment, you can’t forget the fact that you’re going to have to store it somewhere.
With that in mind, this one goes straight to diamonds. A diamond is much, much smaller than gold bullion, while being worth twice or three times more than gold of the same size.
So, in terms of that, diamonds will save you room while being worth a lot more than bulky gold bullion.
When deciding on investing in a physical asset, you need to consider how you’re going to store it.
You can purchase diamonds in tiny units that, as we’ve mentioned, are worth a lot. Even more so, you can keep them in a small safe; they do not require much room.
On the other hand, you can wear the gems in the jewelry, which is a pretty unique characteristic that not many assets have. We’d like to see you try doing that with gold bullion.
This point should also go to diamonds since we know that diamonds are the hardest material in the world.
There’s minimal risk of your gem wearing off or getting damaged, so long as you take good care of it. With gold, this risk is present, to an extent.
Another factor you have to keep in mind when considering investing in anything is inflation.
The great news is that diamonds are inflation-proof – just like other physical assets, including silver, gold, or real estate, so you don’t have to worry about that.
5. Price Transparency
Moving into a trickier territory, price transparency is not something that the diamond market can pride itself in, really.
With a market like the gold one, there is a pretty uniform popular price index that you can easily look up, and you’ll know what to expect.
Diamonds, on the other hand, don’t have a universal price per gram.
What you’ll have to pay or get paid for a diamond depends solely on the supply and demand and the evaluation done for each diamond individually. That evaluation is almost always a little subjective.
See Also: Who Controls The Price Of Diamonds?
6. The Wait
We know that investments require you to wait before you get your return. With some, that time is pretty short – while with others, you’ll need patience.
Well, diamonds fall into the latter category. They’re simply not for impatient investors and those looking for quick returns.
But, if you are happy to wait a bit and then reap the benefits, diamonds might be the choice for you. Especially if you have other investments that can provide you with profit in the meantime.
Believe it or not, not many people will want to buy diamonds. And that goes back to the liquidity aspect of an investment. Diamonds wouldn’t be considered the most liquid of assets.
Some companies purchase diamonds, but what they will be prepared to pay will be much less than what you bought them for – that’s pretty much a guarantee.
Related Read: Diamond Buying Guide: How to Choose a Diamond?
Tips For Investing In Diamonds
If you do decide to invest in diamonds, you need to be smart about it. As we’ve seen, they are tricky to navigate, so you need to be wary.
Luckily, we’ll provide you with some tips to help you along the way!
Manage Your Expectations
We have already told you that diamonds aren’t a vehicle for getting you rich quickly. So, don’t expect your wealth to skyrocket in a couple of years after buying a diamond.
Just like most assets, their market value can fluctuate. Don’t let this scare you. The good thing is that, if we look at their value in the past, it tends to go up. Just very, very slowly.
So, prepare to be patient – and don’t rely solely on diamonds to get you profit.
Diversify Your Investments
Since diamonds are slow-burners, you should have some other investments to fall back on that will provide you a sense of security while diamonds reach their “prime time.”
Look into investments characterized by fast returns. That way, you won’t have to worry about whether you’re going to have to sell your diamonds before it’s time.
Most shops will provide you with some sort of certificate. That might seem legitimate at the moment, but you need to beware.
Our advice is to always look for diamonds that are independently certified. The reason for this is because diamonds certified this way will be much easier to sell than ones that are not. Plus, they will be much more desirable.
Another tip is to keep the certificate in a safe place – but not with the diamonds themselves, just to be safe.
Learn More: Is IGI As Good As GIA?
Mind The Shape
Some shapes of diamonds are more in demand, making them desirable for a much broader market than others. Round brilliant diamonds are the most popular, so we’d suggest you invest in those. Other shapes are popular too – the Princess cut, for example – but not as popular as the round ones.
Steer Clear Of Lab-Grown Diamonds
Lab diamonds are basically manufactured diamonds created in a lab and under controlled conditions. They have the identical chemical makeup as natural ones, but how they were formed is inherently different.
That, and the fact that they are relatively new on the market, affects their price and stability.
The majority of the appeal of natural diamonds is their rarity and the way they were formed and mined. Lab diamonds are pretty much the opposite. They can be mass-produced for a much lower price, making them available to a much broader consumer market.
Also, they are new, and nobody can really predict their trajectory in the future when it comes to their resale value.
Diamonds may be very attractive to the eye, but is the same thing true for your wallet? Is buying a diamond a good investment? You came to this article wondering that exact thing, and we hope we cleared things up for you.
Here’s a rundown of what we went over:
A good investment is determined based on liquidity, risk assessment, and investment return – and this goes for any investment, including diamonds.
When talking about diamonds, their value depends on a number of things – their rarity, cut, color, mining process, etc. – which will then determine their resale value.
Regarding how good of an investment a diamond is, we need to consider many different things. So, this isn’t a straightforward answer; you’ll need to weigh out the pros and cons.
In terms of size, storability, durability, and inflation, diamonds are a favorable choice over gold, for example. However, their price transparency, return time, and tradability, are tricky and may need an experienced investor to utilize to the fullest.
We also gave you a few tips for investing in diamonds if that’s what you choose to do.
Know what to expect, don’t rely solely on diamonds for profit, buy independently certified diamonds, only invest in round brilliant diamond cuts that are the most in-demand, and stay away from lab diamonds.
So, now that you have the essential info on this topic, you can make an educated decision. Whatever you decide on, happy investing!