Like any investment there are risks and rewards and to make the most of your investment you need the right knowledge to make the best investment. Investing in diamonds is a great addition to a diversified portfolio or self-managed super fund. With the right market conditions, investment diamonds are very secure with a consistent and steady history of growth. Diamonds are not an ideal short term investment outside of the diamond industry but are a great medium to long term physical commodity investment that can be held and appreciated. The security of investing in diamonds is very strong as the industry regulates the market to keep the diamond price steady and of all precious gems the diamond has remained the most popular and most expensive jewel worldwide. Not all diamonds are ideal for investment and to successfully invest in diamonds the best advice is to find a wholesale diamond merchant who can consult with you about your options and most importantly sell you the right quality investment diamonds at wholesale prices.
How to invest in diamonds
Purchasing a diamond at the wholesale price and not retail is the most crucial part of diamond investment as the return sale of your investment will often be at the wholesale price. If a diamond is purchased at retail price then the length of time required to return a profit is dramatically increased. Trying to learn how to invest in diamonds without expert help can also result in very poor diamond selection. Buying diamonds from a wholesale diamond merchant means that you are buying diamonds at the best possible price from an expert in the industry who can help with your selection and will often be a contact for when you want to resell your diamonds. Investing in diamonds can start with a little as $5000 and depending on the investment criteria your portfolio should have diversification to cover a variety of popular quality diamonds to make it easier to liquefy when required. It is essential to purchase investment diamonds that can be easily re-sold as this is the most difficult part of diamond investment. Although investment diamonds can be purchased in large parcels they often need to be sold in individual allotments.
What are the returns on investment diamonds?
Unlike most solid commodity investments like gold and other precious metals, diamonds do not have a linear pricing structure meaning greater knowledge is required with your purchase. Buying gold has a single market purchase and sale price for any quantity but tends to have a regular market fluctuations, it will have highs and lows but generally increase in value in the long term. Diamonds are a much less volatile market that is traded worldwide in $US but has a variable price depending on the quality of the diamond. There is a wholesale trade system called the Rapaport List which is an extensive guide published to outline all the different quality diamonds. Investing in white diamonds has a general annual investment return of around 5-10% with the rare coloured diamonds like pink Argyle diamonds returning 15-25% annually.
Selecting a diamond for investment
Investing in diamonds requires knowledge about what diamonds will have a significant increase in value and will be an attractive diamond for resale. Diamonds of investment interest of at least 0.50 carat with diamond over one carat being the most ideal. Selecting an investment diamond should be of 1-2ct in size with an internationally recognized diamond certificate for quality grading and assurance and be of a premium quality cut and a medium to high quality colour and clarity grade. If purchasing several diamonds then selecting a variety of qualities will help increase you market spread and increase your ability to sell your diamonds. Poor quality or small size diamonds need to be avoided as they are of very little interest to the wholesale market and do not have great resale value. The best investment diamonds are ideal cut white diamonds D-H/IF-SI, which can be easily sold in any market conditions.
Investing in Argyle pink diamonds
White diamonds are a good investment but rare coloured diamonds like the pink Argyle diamond are a fantastic investment if the budget is there to purchase them. Pink diamonds are so rare that the demand for these gems far exceeds the availability which makes them such a good investment opportunity. Normally small diamonds are not a consideration but with pink diamonds any size diamond will have great investment value. However they will still need to be of a good colour saturaltion and clarity grade to make for easier resale.
Selling your investment diamonds
For the general investor selling an investment diamond is the most difficult part of the investment, selling the diamond privately will get the greatest return but can be quite difficult to sell. Generally most private diamond sales are made to a wholesale diamond merchant who will either purchase your diamond outright or sell it on your behalf. Although you will usually only receive just below the wholesale market price it is a much quicker and easier way to sell you diamond and if invested in the correct way will still return a good profit. The longer the term of the investment the safer the returns will be and will give you greater flexibility when selling the diamond.
The main risk with diamond invest is in the initial selection of the diamond but with the help of a good diamond merchant you can avoid purchasing problematic diamonds. In Australia investing in diamonds also means investing in currencies as diamonds are traded worldwide in $US so if there is a major fluctuation in the exchange between the $US and $AU then the price can move up or down against the world market price. When purchasing a diamond there are short term investment risks incurred through the payment of GST and the profit margin of the seller. This will generally take around three years for this amount to be recovered, which is why we suggest holding a diamond at least 5 years to see a return. Although a diamond merchant can suggest the most profitable and popular diamond at that time the market can have changes and even the most secure purchase may change in popularity when it comes time to sell.
The risk of diamond investment is quite small as are all investments over the long term and diamond investment as far as history goes is a very profitable and secure investment, which is ideal for investors with a diversified portfolio.
Unfortunately for buyers outside of the jewellery industry investing in white diamonds is generally a secure but modest growth long term investment product that can be difficult to predict. White diamonds have a steady growth rate of 3-6% a year which over the long term will have good compound growth but in the short to mid term there are larger factors that can affect the chances for profit. As a private investment buyer the GST and profit made by the seller will be lost on the initial purchase, which will need to be earned back with time as well as that all diamonds are priced in US dollars so any fluctuations in currency valuations can also affect the short term growth of a white diamond.
To invest in white diamond the diamond must be purchased as close as possible to the wholesale diamond price and very well selected to predict the saleability of the diamond once the invest is ready to be cashed.
The old theory of diamond investment was to purchase the best quality and rarest diamonds namely a D/IF or similar quality as this would give the best investment growth. However to sell a D/IF diamond especially in Australia is very difficult and is not the type of diamond that is currently in demand. With global connectivity there really now is no such thing as a rare white diamond and there is very little demand to need to buy white diamonds from investors unless there is a significant gain for the wholesaler. This means that unless the investor can sell the diamond privately they will again loose real value off the diamond on selling to a wholesaler. With all of the incurred losses to make any profit on white diamonds it is a long term investment that will only make a very modest profit.
White diamonds are an investment in terms of that they will improve in value over time but as a profit earning investment for private investors there are just too many negative implications with white diamonds that can reduce the ability to make a profit and there is a very high risk of loosing money if you need to sell out in the short to medium term. For a industry buyer it is much easier to make a good short term profit with only a very low risk of a short to mid term negative growth. White diamonds as an investment for private buyers is really now not recommended as although reasonably secure over the long term the growth potential is only just above the general cash rate.
If you are a serious investor looking for a high growth alternative investment then you cannot go past an expertly selected fancy coloured diamond for a specialised high growth investment product.