In 2023, investors are looking to diversify their portfolios with assets that can retain their value despite rapidly increasing inflation rates. The last few years have been full of confusion for several investment markets, so it shouldn't be a surprise that investors are being extra careful about the assets they purchase. Like precious metals, diamonds have been a staple in the world of luxury investment assets, which explains why many investors are adding them to their portfolios. If you’re considering enhancing your portfolio, you’re probably wondering if diamonds are a good investment. Here’s a guide on what you should know before buying an investment diamond.
The global market for diamonds is expected to grow in the following years despite disruptions that resulted from the COVID-19 pandemic and subsequent Russia-Ukraine war. Sanctions placed on Russia due to the war led mining companies to stop operations. This led to various supply chain issues, considering how Russia mines a large chunk of the world’s diamonds. Nevertheless, the market is forecasted to show impeccable growth because of increased disposable income and credit availability.
Additionally, the demand for diamonds has gone up in various markets like Russia, Asia, and the Middle East. Aside from being a crucial component in luxury jewelry items, diamonds have other applications in glass drilling, manufacturing mirrors, and even computer chip production. As these industries get a major boost, the demand for diamonds will increase further.
Diamonds have much more to offer than just their looks. Here are some other advantages of buying a diamond as an investment.
Moreover, keep in mind that diamonds tend to induce an emotional response. Hence, there’s a high likelihood that the right buyer will want to pay more than you originally expected. But to increase your chances of getting a good return on your investment, you need to buy the right diamond.
Purchasing a diamond for personal use differs greatly from getting an investment diamond. Here’s how to buy the right one.
First, consider the minimum criteria in each of the 4C's of diamonds. This refers to a diamond's carat, cut, color, and clarity.
The carat measures the weight of a diamond, so more carats mean a higher value. Remember that the value surges at different points along the investment pricing scale. You’ll find that the value surges at points like 0.5, 0.7, and 1.0 carats.
While color, clarity, and carat are naturally occurring aspects, the cut is affected by human craftsmanship. It determines how well a diamond reflects light and how pleasant it looks. Investors should consider the fire, brightness, and scintillation before choosing a specific cut.
A diamond’s color is ranked on the GIA color scale. D indicates the complete absence of color and a higher value, while Z implies the presence of a light color and is of the least value. Since diamonds naturally come in different colors, this scale only assesses colorless diamonds.
Clarity refers to the purity of a diamond. Gems are rated on a scale to signify whether they contain internal or external irregularities, also known as crystal inclusions and blemishes. The GIA clarity scale ranges from internally flawless (IF), which is the most valuable, to include (I1, I2, and I3).
Pro tips: Diamond clarity is the presence or absence of internal and external imperfections in a diamond. It is graded on a scale from Flawless to Included (I3) and can affect the value and beauty of a diamond. Understanding the clarity chart is important when purchasing a diamond. Read more
When you’re looking to invest in a diamond, it should be as close to the source price as possible. This approach allows you to profit when you resell them later. Avoid purchasing an investment diamond from a retailer, as you incur additional costs associated with sorting, cutting, and polishing the gem.
While most investors will recommend getting a certificate to authenticate the diamond's value, it’s best to confirm it yourself as well. It’s best to have an independent third party, such as the Gemological Institute of America (GIA), grade the diamond before you purchase it.
When you purchase a laser-drilled, fracture-filled, or color-treated diamond, its value decreases to a great extent. This makes it less appealing to buyers and, therefore, difficult to resell. This creates the need for a proper certificate that proves the diamond is untreated.
Recent market trends prove that the global market for luxury investment assets like diamonds is set to grow in the following years. These predictions show that diamonds are a suitable asset to diversify your portfolio. They offer a number of advantages, like durability, being inflation-proof, and being easy to store and transport. Nevertheless, it’s crucial that you choose the right diamond based on the 4Cs and have it graded by an independent third party.
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