Any wise purchasing decision comes with one factor in mind. Does whatever you buy add value in any way? And the decision gets heftier the more expensive the purchase. That could be the reason why you are wondering whether investing in diamonds is a worthwhile move. Well, the answer could lean on either extreme of the spectrum.
You see, any investment should bring you some ROI. That is the basic premise behind investing in shares, stocks, or commodities. You buy at a low price, hoping that a favorable market shift will allow you to sell at a higher one.
2020 hit the diamond market hard due to the Covid pandemic. Yet, it managed to hold its own against other luxury segments. Production fell by 20% when compared to the previous year. To cushion midstream buyers, miners stopped any diamond sales during the first half of the year.
Yet, a look at midstream financials showed healthy balance sheets. Indeed, the ability of the diamond industry to weather market storms shows that it could be a good investment option. But not without the following critical considerations.
1.Understand the Complexity Involved In Diamond Investing
Investing in diamonds is not as simple as buying a whole caseload of raw diamonds. Or, buying up all types of accessories like diamond rings, diamond studs, tennis bracelets, or more. Anyone who has walked the road will tell you the process is quite complex.
You have to understand all aspects, including the financial and technical. So, ask yourself all the questions you would if investing in stocks. Such include:
- Which stocks, in this case, diamonds, to invest in.
- Is the market ripe for diamond investing?
- Which products are the most popular? Before, mined diamonds were the only option. But now, we have loose lab created diamonds. Such products are appealing to a niche market segment that supports sustainability. The production of the diamonds happens in a lab; thus causing zero destruction to the environment. Yet, you get the same clarity, cut, carat, and color as mined diamonds. Indeed, the certification and grading are the same as that for mined diamonds.
- How much should you put into the investment? The rules of stock investing are to diversify your portfolio. As such, consider investing in different lines like mined diamonds, lab grown diamonds, accessories, and so on.
- A market analysis covering loss and profit risk, depending on the current market situation.
Besides teaching yourself investing 101, you must do the same for diamonds. Get ready for plenty of research to understand all the nuances of diamond investing.
2.Know Where to Buy the Products
The diamond industry is one where players depend on reputation to succeed. But, this does not mean the absence of unscrupulous individuals. Before buying diamonds, know how to identify authentic stones. This ties in with the point above of proper research. Familiarize yourself with the 4Cs of diamonds which focus on cut, color, clarity, and carat.
You will also discover that finding an entry into the business strongly depends on connections. Indeed, it is very much like a members club. Building strong networks of people you can trust is critical.
Where you buy the diamonds will determine pricing. If you get them from midstream buyers, you will pay their mark-up as well. Remember, they must add to their profit margin to make money. That could lower your selling price unless you hold on to the pieces, hoping they will appreciate. A good option would be to buy straight from the mines or from the lab grown diamond producers.
Familiarize yourself with terms, like buyback policies, to determine ROI. You can buy the stones from seller A and realize you are not able to sell them. Reputable sellers can buy back the stones but at a discounted price. That, in essence, means you could lose some money. This is especially true for smaller rocks. So, determine the buyback price before investing in the stones.
3.Carat and Color of the Diamonds
Looking at diamond carats and color: the rarer, the better. Smaller carat sizes will not bring back good value. When buying diamonds, go for one carat and above. The reason is quite simple. It is easy to get small stones instead of one large piece. A $100,000 diamond engagement ring is a better investment option than many $1,000 rings.
The same applies to colored diamonds. The rarer, the higher the value. It is, for instance, very hard to get pure blue, pink, or red diamonds. The same does not apply to clear diamonds.
The most expensive colored diamond, for instance, sold at $57.5 million. It was a 14.2 carat blue diamond. Yet, the Smithsonian is home to a 45.2 carat blue diamond that experts estimate is worth $250 million. A pink diamond is so rare that it can bring in over $700,000 per carat.
4.Get Realistic About Diamond Appreciation
No one can argue about the fact that diamonds are expensive. But, this does not always mean you will profit from them. Some market factors have a significant role to play. A good example would be diamond trends. That diamond engagement ring that your great grandfather gave his bride-to-be may not be as valuable today. Trends, shapes, cuts, and technologies are ever-evolving. You may find it hard to sell such pieces in the modern market.
Getting the right pricing for customers can be difficult if you are operating as an individual. Remember, the industry relies on trust and reputation. If buyers or brokers don’t know you, it can prove challenging to sell your stones.
Further, you may find it hard to get a reasonable price because you are selling as-is. Stores may offer extra services like insurance, appraisals, and sizing. And we can’t ignore that they seem more trustworthy due to an actual established business.
Your best option would be to get someone with an industry reputation to sell the stones for you. But, the margins will be lower because you have to pay commission or whatever you have agreed on.
Like any other type of investing, diamonds can bring some excellent ROI. But, the trick lies in making the right decisions and taking strategic steps. Knowledge of diamond investing and the market, and of the industry as a whole, is a perfect starting point.
But, there is more, as we have shared above. Please use these tips to know whether diamond investing is for you.