From an investment standpoint, diamonds are more enticing when sold than they are when worn. Diamonds have outperformed both traditional and alternative investments in recent years and are expected to encounter increased demand from developing countries. In his 2012 report on diamonds as an investment, gemologist Paul Buchanan states that in 2011, when the Dow Jones posted 5.5 percent for the year, high-grade round diamonds were offering returns as high as 20.2 percent for 3 carat diamonds.
Investment Grade Diamonds
Investment-grade diamonds account for less than 2 percent of all diamonds mined. According to Hadar Diamonds, an investment diamond should be round, brilliant in shape and cut, as well as at least 0.75 carat. Proportions of the diamond must also fall within a specified range. Viktor Logunov of Brillianty ALROSA, which provides diamond processing services for wealthy clients, has his own set of parameters about what constitutes an investment-worthy diamond. In his view, the standard should be, at the least, a diamond that is 5 carats with a clarity of VVS -- or Very Very Slightly Included -- meaning minimally blemished; H color, which is considered white; and Triple Excellent in cut, polish and symmetry.
Factors in Investment Diamond Price Appreciation
A number of elements are involved in whether and how much an investment diamond appreciates over time and, thus, how potentially profitable it could be upon being sold. In general, larger diamonds appreciate more than smaller diamonds over the long term, but this does not preclude smaller diamonds from occasionally outperforming larger ones in the short term, as they did in 2011. Buchanan recommends between 3 and 5 carats for wealth preservation. He also cautions against buying below certain thresholds of quality, such as below "G" color, below "SI1" clarity and below "Very Good" cut.
Selling investment diamonds is different from selling other diamonds in that the first type is seen less from a sentimental viewpoint than from the expectation that the item will increase in value. Logunov indicates that the interplay of investment diamond players is a delicate balance between the buyer and seller on the one hand and the investment consultant who's acting as a risk manager, portfolio builder and intermediary. While the consultant makes recommendations and monitors conditions in the diamond markets, it is ultimately the investor who decides to sell the diamonds.
While selling for a profit may be the ultimate goal, investment diamonds are generally viewed as long-term investments. Investment diamonds can be included in an investment portfolio, in accordance with allocations typically recommended for alternative investments, according to Buchanan. Thus, no more than 10 percent of the total portfolio should consist of diamonds. However, true diversification can be problematic in that the high cost of investment diamonds is prohibitive to including many different diamonds, unless you choose to participate in a diamond fund that pools client assets. Pink Iguana, in the U.K., is one such fund specializing in rare diamonds. Managed commodities funds may also offer some exposure to diamond markets. PureFunds ISE Diamond/Gemstone ETF (GEMS) is an exchange-trade fund that gives investors the chance to invest in rough and polished gemstones. For personal portfolios, diversifying might take the form of different sizes and colors of diamonds, not in any specific allocation of funds. Due to the lack of homogeneity of diamonds, it may be difficult to compare different sets of diamond investments.
- Burke/Triolo Productions/Brand X Pictures/Getty Images
- The Greatest Challenges of Diversification
- Asset Allocation vs. Market Timing
- The Largest Mutual Fund Families in the U.S.
- How to Invest in Jewelry
- Prices of Modular Vs. Stick Built Homes
- What Organic Fertilizer Should I Use on Vegetables?
- Difference Between Private Equity & an Investment Group
- How to Track Smart Money Flow in the Markets