Diamonds are a girl’s best friend…
“Gentlemen Prefer Blondes” was the title of the 1953 movie with the famous performance of Marilyn Monroe, including her iconic sentence “Diamonds are a girl’s best friend”. Diamonds are more than just gemstones, they symbolise elegance, wealth, and sophistication, and they are also indispensable elements of objects such as wedding rings. Let’s walk around why and how to invest in diamonds to avoid the biggest mistakes.
Diamonds present similarities to gold as an alternative investment given that they are both used for jewellery and possess special value. Both are extremely rare, but nothing matches the impeccable rarity of diamonds.
Diamonds are tangible, transportable, and a solid asset class as liquid investments. The percentage of diamond investment is higher during economic uncertainties when investors seek a flight to quality by having diversified assets to reduce their portfolio risk. Many of the primary benefits gold provides as an investment apply to diamonds as well. Moreover, it is a solid long-term investment as it has been recession-proof for many years since its “everlasting” value is independent of any government decree.
For many UHNWIs, investing in diamonds is considered a safe and advantageous low-risk investment. Apart from being easily transportable and accepted anywhere, the ultimate reason why ultra-high-net-worth people include it in their portfolio is that compared to other long-term investments such as artworks, diamonds can be easily converted into cash. Moreover, it is a medium of exchange and a unit of account. It’s a great way to preserve one’s wealth and it offers purchasing power in difficult economic times.
Diamonds are usually considered solid long-term investments and a good means for investment diversification.
The price of diamonds is controlled by a few major players in the diamond industry through a supply-controlled business model. Despite continuous price increases, these few major players have been highly successful in increasing consumer demand for diamonds.
If you cannot provide the source of origin of your diamonds, you can easily lose almost half of their possible value. However, the diamond market can be relatively complex and intimidating. Purchasing diamonds requires very high care and a much higher professional involvement than gold.
You may believe that only professionals can purchase diamonds or one should undergo years of training to acquire the secrets of diamond trading. However, the days of inaccessible diamond trading are gone as you can now buy and sell diamonds just as so-called professional traders. It is a really interesting way to make a deal because you spend more time selecting the quality pieces than agreeing on the price.
While intermediate channels try to provide too many irrelevant concepts and information that play no part in your effective diamond investment process, the UHNW Private Club in the Principality of Monaco regularly organises diamond educational lunches. The participants organised in a small group, are given the opportunity during these events to master all the essential steps to build profitable diamond investments. This is a great opportunity to get closer to the diamond world and receive invaluable advice and industry secret insights from respected diamond experts.
Strategy for investing in polished diamonds
The initial step is to determine “how much are you willing to invest?”. Once you have identified your investment budget, one must then know where to obtain essential information about diamonds. You can gather vital information through various specialised organisations, such as the International Diamond Exchange Website (IDEX), the Rapaport Diamond Report, and the Gemological Institute of America.
In verifying the quality of a diamond, one must evaluate the so-called “4 C’s,” which include:
These “4 C’s” are considered the starting point before purchasing any diamond. The following paragraphs will explain the important factors to consider in each “4 C”.
Regarding the cut, you must ask “what type of cut am I willing to invest in?”. While having this question in mind, you can consider that the brilliance/light depends on the cut of a diamond.
The beauty of a diamond’s sparkle is the result of how well it has been cut. The aspects of cut that contribute most to a diamond’s beauty are proportion, symmetry, and polish. Although nature determines the characteristics of a piece of rough diamond, the hands of the master cutter release its fire and brilliance.
When a diamond is cut to exacting proportions – neither too deep nor too shallow – light will reflect inside the stone from one mirror-like facet to another and reappear to the eye in a flash of spectral colours.
Secondly, for the colour, you must ask “what colour scale am I willing to invest in?”. The more transparent the diamond is, the more expensive and the rarer it is. The following figure shown below illustrates how diamonds are graded on a colour scale.
Though diamonds are transparent, almost all diamonds display some slight hint of colour. A diamond’s colour is assessed against a scale from D through Z based on a standardised colour grading system that has been internationally accepted since the 1950s.
High-quality engagement rings are usually selected only from the top three grades (D, E, and F). These diamonds are deemed colourless and are therefore the rarest and most valuable.
In gemmology, fluorescence refers to the property some diamonds have of glowing when exposed to ultraviolet light. When such diamonds are observed under incandescent or natural light, they can often have a milky appearance – even when they have good clarity. Try to accept only diamonds with zero to faint fluorescence, and carry no diamonds whose appearance in daylight is compromised by this unique property.
Almost all diamonds have slight internal and surface characteristics, most of them too small to be seen by the unaided eye. When viewed using magnification, they can take various forms such as tiny crystals, clouds, or feathers. To determine a diamond’s clarity grade, a gemologist will consider its size, location, quantity, and nature.
Diamonds possessing no such characteristics are categorised as Flawless (FL) or Internally Flawless (IF). In general, the greater the imperfections are in number and size, the lower the clarity grade. Therefore, one must look at a gemologist’s clarity grade before purchasing a diamond and eventually ask “what clarity standard am I willing to invest in?”.
The last “C” is the carat weight. Each diamond size is calculated through its carat weight. Therefore, you must ask “what carat weight of diamond am I willing to invest in?”.
A diamond’s size is measured by weight, expressed in carats divided into points. A carat equals 100 points or 1/5 of a gram. Diamonds of higher carat weight are generally more valuable because they are found less frequently in nature. But diamonds of equal carat weight may vary greatly in value because they differ in the quality of their cut, colour, and clarity. Therefore, the weight alone is a poor guide for evaluating a diamond, since it is an intricate combination of factors that determines a diamond’s beauty and quality.
To verify the diamond’s quality, it is important to verify its issued certificate as it confirms the diamond’s authenticity and its quality (”4 C’s). Learning and mastering the “4 C’s”, will help you identify your “acceptable quality grade” for your diamond investment plan.
Once you have identified your acceptable quality standard of diamond, you should consider calling various diamond dealers to collect information about diamond prices, so you can set a benchmark and/or a price range. Retailers will convince you that you are paying at the right and correct price but you might be paying a very expensive price.
When you are purchasing diamonds at a higher value, you should consider consulting and contacting various gemological institutions to acquire vital knowledge about diamond registration or certificate. By doing so, you will be able to see which laboratory has the best price for diamond grading and laser inscription.
Naturally, this applies to diamonds only. When you purchase it as a jewellery item, mounted into a neckless or a ring, the whole aesthetics and the manufacturing brand can set an entirely different value. Understandably, a diamond wedding ring from Tiffany & Co. represents a higher valuation.
For men, one of the most important diamond purchasing moments in their life comes before the proposal to their loved ones. It is a typical rule that one must spend at least three times his salary on a diamond ring. However, due to personal tastes and individualisations the limit is the sky.
As for some great inspirations, one can look at some of the most interesting royal wedding rings.