Are diamonds a good investment?

Diamonds are a terrible investment! The value of diamonds is basically sentimental. If you try to resell your diamond jewelry, you will get less than half of what you paid for it. However, investing in the diamond industry is a different story. Diamonds are pretty stable in the stock market, and investing in diamond stocks is a pretty solid investment.

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Although I have been a big fan of diamonds and fine jewelry for many years and I appreciate these stunning objects very much, I do not consider diamonds to be a good investment. I think investments are better associated with stocks and bonds. An investment should be able to hold its value and be eligible for cash conversion at any given moment. For instance, in the gold market one can buy or sell at any time. If you want to sell a diamond one day out of the blue, chances are you'd be lucky to get half the price for it. Let's put it this way, investing in diamonds is no way to secure your future.

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As a profitable money investment, diamonds are generally a good choice. Diamond prices are on the rise in a long term perspective. I wouldn't make diamonds a solution for a retirement plan or as the only asset I would leave for my children, but as a side bonus investment diamonds can be very profitable.

You can also look at the term "investment" in the more abstract sense. Diamonds are an everlasting symbol of love. They are a present that will always be cherished, taken care of and serve as a reminder for a strong bond between two hearts. In this sense diamonds also make a great everlasting investment.

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Investing in diamonds has many advantages: Diamonds can always be sold, as long as people will continue getting married (no doubt about that I believe:)) diamonds would remain a necessity, diamonds are small and can be easily carried and traded in any location.

The only disadvantage is that diamond are still not considered a commodity by the market, thus a more intense consumption and a stabilization of diamond prices haven't taken place.

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It is possible to invest in diamonds in two ways - either by buying a diamond (with a setting or without) or by buying stock in a diamond company.
In my view, investing in a diamond as jewelry is not a good long term investment, especially when compared with other precious metals, such as gold. First of all, the method used to appraise diamonds is not homogenous. The value of diamonds is established according to carat, clarity, color and cut. Each of these qualities (the 4C's) affects the overall market value of a diamond, which means that diamonds lack fungibility- a diamond's value is not guaranteed in relation to other diamonds. In addition, diamonds are not considered a liquid asset - they cannot be easily sold without loss of value. When buying diamond jewelry, the setting of the diamond and company brand are taken into account during pricing. When selling a diamond privately, the setting does not add to the diamond's value. There is no natural scarcity of diamonds - the rarity of diamonds has been largely invented by the wildly successful ad campaigns of the diamond companies. Furthermore, diamond jewelry is often an emotional investment as well as a financial one. If the diamond has non-monetary value, the investor may hesitate to sell.
Buying stock in diamond companies, however, can be considered a good investment. Diamond production is currently in the hands of very few companies. The De Beers Company, for example, currently controls about 40% of the diamond production market. In addition, the cutting and polishing of diamonds, which determines the value of diamonds to a great degree, is strictly controlled by a few players. This means that the supply and quality of diamonds in the jewelry market is controlled and prices can be raised with impunity- the De Beers Company raised diamond prices three times during 2005. As well, most diamonds produced today are used in industrial tools much in demand, not in jewelry, so the diamond market is fairly protected from fluctuations in the dollar.
If one wanted to invest in diamonds, it would be advisable to pass on the jewelry and purchase stock in a well established diamond company. In the event that you are bound and determined to buy diamonds for their investment value, be sure to buy 'investment grade' diamonds. Do not buy a stone with a fashionable cut, as the fashion will change. The diamonds that have the highest resale value are the ones most typical in the market, not the most rare- medium grade brilliant cut diamonds are always in demand. Remember to find a jeweler you can trust and above all - be thorough in your research of the diamond market before making an investment.

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