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Diamonds as an Investment

January 20, 2016/ BY Coster Diamonds

Making your money grow through investment is a good idea, however, the question is – what to invest into? One of the first things that you may think of is real estate and stocks, and that’s quite understandable (and predictable). But what about diamonds? Do they make for a good investment? Well, the answer to this question is not simple and straightforward. Otherwise, everyone would just flock to their nearest financial advisor and become billionaires overnight.

What makes the whole situation complicated is that, unlike gold for example, diamonds don’t have a universal price per unit of weight. In other words, not all diamonds of the same weight will be worth the same amount of money. There are many contributory factors that determine the value of a diamond. Of course, supply and demand also play a significant role, the latter especially important for large markets such as China and India. Therefore, one must be well informed before making the final decision on investing in diamonds. The price of a diamond is determined by 4 essential characteristics: carat, color, clarity and cut.

The number of carats is a case of “bigger is better”. More carats equals a more valuable diamond, but interestingly, a 2-carat diamonds is not going to have twice the value of a 1-carat diamond. Instead, it’s actually going to be 4 times more valuable. That’s because of the Tavernier’s law (also known as Indian law), which looks like this:

Price = W2 × C

In this equation, W stands for the weight of the diamond in carats, while C represents the basic price of a 1-carat gemstone. As you can tell, with more carats, the price will increase significantly.

When it comes to color, you will want either near-colorless or colorless diamonds. However, colored diamonds can also be quite interesting for investors, if they are particularly rare. Next, we have the matter of clarity, or in other words, the amount of imperfections. As you can imagine, the fewer imperfections a diamond has, the more valuable it is. And finally, we have the cut, generally considered the most important characteristic of a diamond. It determines how much light is reflected in the diamond, and the best ones reflect most of the light that enters them.

Since there is no universal price per unit of weight for diamonds, experts have to consult special price guides to keep up with the prices of diamonds. These guides, which are published quarterly, monthly or weekly, include the Troy Diamond Report, the Ajediam Antwerp Diamonds Monthly, and the Rapaport Diamond Report, just to name some. In addition to that, there are various online sources, where you can check the availability and the asking price for different types of diamonds.

An example of the Rapaport Diamont Report

rap

 

 

In investing, one of the advantages diamonds have over stocks and shares is that they are physical assets. They are virtually indestructible, and difficult to lose when correctly insured. Compared to real estate, a diamond is much easier to maintain. Diamonds are fairly easy to obtain (obviously, as long as you have sufficient funds to pay for them). And finally, as a certain company would say, a diamond is forever. There’s certainly a lot of truth to it, and investors are well aware of that.

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