Investing in diamonds can be a great way to make money and wear your investment at the same time! As with investing in gold jewellery, investing in diamonds is a win-win, so long as you’re careful to protect your investments when you’re wearing and storing them.
Diamonds can be a great alternative investment. In fact, recently diamonds have quietly been rising in price faster than most traditional investments.
- How much have diamonds gone up in price?
- The pros and cons of investing in diamonds
- Three ways to invest in diamonds
- Buying diamonds as jewellery
- Buying diamonds to store and then sell
- How to invest in diamond-mining companies
Quite a lot. In fact…
- From 1999 to 2011 three-carat diamonds increased 144.9% while five-carat diamonds increased 171.1%
- Diamonds increased on average 33% in price over the last ten years, which equates to roughly 4% growth per year.
- Diamonds recover quickly: in August 2008, after the economic crash, they decreased in price by 12%. However, by 2011, they grew a record-breaking 20% in value.
- A decade-long diamond investment outpaced returns in the yen, euro and Nasdaq or Dow Jones indices.
Remember, there are no guarantees when it comes to investing, but at the moment the diamonds market outlook is very positive. There’s increasing demand around the world together with a lack of new discoveries which is limiting the supply. It’s likely that future demand for diamonds won’t be matched by supply so prices are predicted to go up.
London diamond dealer Vashi Dominguez of Vashi.com says: “There are several reasons why diamonds make a good investment. For a start, they are more likely to increase in value even in times of deflation. While many segments of the marketplace may start to lose money, diamonds will typically retain their value and continue to increase. In particular large diamonds provide consistent returns and have proven resilient in a recession.”
He says that the last ten years have seen more demand for diamonds than ever and that the next decade is likely to be the most positive in history for diamond prices.
On the plus side:
- Diamonds have been popular in jewellery for centuries and are likely to continue to be in demand.
- There are a finite number of diamonds in the world and supply won’t match demand, at least in the next few years.
- The demand for diamonds is likely to increase in India and China in particular, as they get richer and buy more
- Unlike property, diamonds don’t need continual maintenance nor do you need to pay tax when you buy them
- If you buy actual diamonds you can wear your investment and enjoy them while you have them
- They’re small and easily portable so you don’t have to pay for large storage
On the minus side:
- Diamonds are small and easily stolen. They need to be watched when you wear them and safely stored, possibly in a bank safe, when you’re not wearing them.
- They also need to be insured which can be an extra cost (though not huge).
- It’s far too easy to produce synthetic diamonds. If you don’t know the difference, and particularly if you don’t buy them from a reputable dealer, you could end up with stones that are much less valuable than the price you paid.
- It’s hard to know if diamonds come from bad mines or not, however if you buy from the right dealers it’s possible to know which mines have produced them.
- Diamond mining can be a brutal trade so, if you invest in actual mines, you need to know that they don’t produce ‘blood diamonds’ (diamonds mined in a war zone, often in terrible conditions, and sold to finance wars).
You can buy and sell actual diamonds or you can invest in diamond mines.
Here are the main ways:
- Buying diamonds and turning them into jewellery
- Buying diamonds and storing them in a vault
- Investing in diamond-mining companies and funds
This is the probably the most fun way to invest in diamonds! Imagine – you’re wearing something you love and it’s going up in value. If you’re not wedded to them, you can wear them for a few years and then sell them and buy better ones… and so on, rather like trading up with property.
Celebrities and wealthy socialites all wear diamonds as a symbol of status and wealth. Diamond jewellers often provide diamond-studded jewellery to celebrities when they attend popular events such as the Oscars.
According to Vashi Dominguez, it’s best to spend at least £5,000 on good diamonds to wear and to keep them for around five years. A good dealer will also let you know when other diamonds are on the market which could rise in price quicker than your current ones. That way you can trade in diamonds you currently own for better investments at any time.
It goes without saying that you should buy diamonds, and settings, that you love so that you (or your partner) really enjoy wearing them either as earrings, bracelets, rings, or necklaces.
Keep your diamonds safe when you’re not wearing them. Some people store them in a safe at home and others in a bank safe, although that’s harder to use and will cost you a monthly fee. You should also make sure that they’re mentioned on your home insurance.
Diamond trading is an unregulated market and the price of cut diamonds is still tightly controlled by De Beers, the most famous diamond company in the world, which invites buyers for the jewellery trade to make sealed bids for parcels of gemstones.
However, you can buy diamonds and have them stored with a diamond dealer like Vashi.com. They’ll help you buy the right ones and then store them for you in their vaults until you want to sell them and buy different ones. They can also advise you on which ones to buy and when.
It’s far too easy to get the wrong diamonds, so any amateur investor should go to a reputable diamond merchant to buy ethical and genuine ones.
“You need to go to a reputable diamond dealer in order to have a written guarantee that the diamonds have come from an ethical source,” says Dominguez. Normal jewellers don’t generally know where their diamonds have come from, so you need to be sure that you have a genuine, quality diamond that hasn’t been mined by a company that’ll use the money to fund wars and terrorism. To do this, go to a proper dealer in London – usually found in Hatton Garden – or one of the main cities in the UK, like Marlow’s in Birmingham.
Dominguez also suggests that you buy at least three or four-carat diamonds as they’re going up in price by around 3% a month.
Trends in diamonds vary so if you buy a type or cut that’s popular now, in two or three years you could find that another shape is more fashionable, and therefore going up in price, so you can sell your current ones and buy new through your dealer.
The majority of diamonds – over 80% in fact – are cut in the ’round brilliant’ shape. This tends to be the most popular for jewellery. Other popular cuts include the ‘Princess’ and ‘Marquise’ shapes.
Colour matters, too. White diamonds are always going to hold their value, but coloured diamonds like blue, pink, and yellow ones are growing in popularity. Remember: the more demand for a limited supply, the higher a price you can command! Coloured diamonds grew an average of 154.7% between 2006 and 2014, compared to the average growth of white diamonds of around 60% in the same period.
However, classic cuts and colours will always stand the test of time compared to fashion trends – so if you want a long-term investment, opt for the classics.
Investing in individual companies is always risky so you really need to do a lot of research, not only into the companies themselves but also in the sector generally. Before you put any money into any of these companies, make sure you know the history of them, how they’ve performed generally, how the mining sector – and particularly the diamond-mining sector – has performed and what the possibilities are for the future.
Reputable companies to consider include:
• Anglo American own about 85% of De Beers which is one of the biggest diamond companies in the world.
• Petra Diamonds is on the London Stock Exchange and has interests in diamond mining.
• Gem Diamonds is another one quoted on the LSE.
If you do decide to invest in a mining company, try to go for one of the big ones that has a few different mines. The ones that only have a single mine can be a bit precarious as if that mine suddenly goes wrong (maybe there’s a local war or there’s an accident) then their income will totally drop.
Not sure diamonds are the way to go for your investment plans? Not to worry! Check out our other investment guides to find the best solution for your financial circumstances.
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.