5 Vital Tips on Investing in Diamonds
Shirley Bassey did say that Diamonds are forever, while Marilyn Monroe in a song said that they are “a girl’s best friend” and even Zsa Zsa Gabor said that she had never hated a man enough to give him back his diamonds. Nowadays, investors turn to diamond because of both their aesthetic qualities and long-term value. The ROI for these precious stones surpassed that of equities for a good portion of the last fifteen years.
From 1999 to the year 2011, Rapaport Diamond Trade Index stated that 3-carat diamonds increased their value by 145%, while that of 5-carat diamonds increased by 171%.
The CEO of Diamond Manufacturers, Vashi Dominguez in a statement said that certain kinds of diamonds as well as the colored varieties, have better maintained their value in the past years than some other more volatile investments.
|January 1, 2011 to July 1, 2014 RAPNET INDEX - RAPI is based on the average asking price in hundred $/ct. for the top 25 quality round diamonds (D-H, IF-VS2, RapSpec-2 and better) with GIA grading|
|Vashi Domínguez - Wikipedia|
Three major ways exist for investors to purchase diamonds: is to invest directly in the diamonds that is to purchase the gems and store them for selling at a future date; buy the shares of the diamond mining firms; to invest in tax-efficient investments and diamond funds.
Direct Ownership of Diamonds
Holding the actual diamonds are a popular method of investing in them since the individuals can wear them if they set it into jewelry. Dominguez says that persons who want to invest in diamonds should expend a minimum of £5,000 on the diamond and hold it for at least five years or longer.
Experts assert that the best way to purchase a diamond is via a diamond trader. If you are not an expert, you are likely to lose money if you purchase from a jeweler. They usually charge double or more of what the diamonds cost on the open market.
|Diamond Investment Value | Leibish Leibish643 × 401Search by image 10 Year appreciation of 2.00 carat, Fancy Intense Yellow, VS+ Clarity Price Per Carat|
However, Candidmoney.com’s Justin Modray, has warned that though investing in tangible assets like diamonds may appear attractive, but there are possible pitfalls particularly in these times of economic uncertainty.
One of the biggest issue is that the value of diamonds are not determined homogenously, unlike gold. This means that diamonds are valued individually based on certain factors which include colour, shape and clarity, in addition to their weight which makes it difficult to accurately track their worth as an investment.
When purchased in the U.K, diamonds suffer VAT meaning that investors will experience an instant loss of 20% from the onset.
There is also the issue of where and how to store the physical diamonds. M.D of Chelsea Financial Services, Darius McDermott says that investors who want to purchase and hold physical diamonds need to take into account the cost of storage and security. They also need to be specified on contents and home insurance.
1. Basic Requirements for Diamond Investment
Before undertaking any investments in diamonds, ensure that it meets these minimum requirements: resale liquidity, price transparency, market access, expert guidance and quality certification.
The diamond must needs be purchased at a reasonable price which is close to an easily resalable price. Purchasing at retail value and then selling at wholesale is not a good idea. Therefore you must seek out an expert that has direct access to the international markets and dealer prices.
The quality of the investment diamond must also be confirmed through a grading and expert confirmation firm that should be an independent third party. Ensure that you institute a relationship with a reliable investment diamond expert who can give in-depth advice about timing, handle transactions and guarantee quality control.
2. Invest in the Basics
Though the large, fancy colored and pricey diamonds appeal to the super-wealthy collectors, they do not offer the timely resale liquidity or price transparency and are thinly traded. If you are not an expert collector or billionaire investor, don’t purchase these spectacular diamonds. The prices are usually speculative and are difficult to sell.
For initial investments, the Rapaport Group recommends investing in Round, D-H color, 1.01 to 1.49 carat, IF-VS2 clarity, Very Good to Excellent Cut, Rapaport Specification 2+ diamonds. They trade very regularly, their prices are widely known and are easy to buy and sell.
Subject to the budget for investment, diversification requirements and strategic objectives, diamond investments could include other sizes such as one-half carats (i.e. 0.51 to 0.69 carat) and 2-5 carats.
While you may consider various investment portfolios based on different sized diamonds, it is advised that you restrict investment to the standardized and well-defined investment diamonds which are described above.
3. Quality Certification
The (GIA) Gemological Institute of America should grade your investment diamonds and have them confirmed by an expert.
Though the GIA is the principal grading authority, they actually grade all kinds of diamonds which may include substandard or poor quality diamonds. If your diamond has a grading report from the GIA, this is not proof that it is a good diamond. Ensure that an expert verifies that the investment diamond is up to the Rapaport Specification 2+ quality standard and has a GIA grading report.
4. Transactions Costs and Bid/Ask Spreads
Depending on the investment, reasonable transaction costs for an investment diamond which includes the cost of delivering the diamonds may be in the range of two to five percent. The Rapaport Group is in the process of developing a new model for investment at 0.005 of the transaction cost that provides opportunities for investment diamond which doesn’t require the delivery of the physical diamonds to the investors
Investors should scrutinize the bid/ask spread (i.e. the price difference between the purchasing and the selling prices of investment diamonds). If purchasing a diamond as investment, you should find out its current price if you were to sell it that same day.
5. Expert Advice and International Market Access
Whom to trust may be the most essential decision that a diamond investor makes. Diamonds as well as the diamond markets are very complex.
Build a relationship with an expert advisor on investment diamond who is knowledgeable about the nuances of the diamond’s quality in addition to the pricing of the international markets. Such an advisor must have direct trading access to the worldwide diamond markets to ensure a fair market value of the bid/ask price.