This article is directed to investors that are planning to commit a portion of their portfolio to larger, investment grade diamonds. If you have not committed to such an investment, but remain interested, I suggest you read “Diamond Investments are a Toteable Form of Serious Pocket Money,” which defines the profile of a diamond investor, “The Pros & Cons of Diamond Investing” and “The Truth About Diamonds as an Investment: The 2012 Report,” that compares diamond investments to more traditional investments. These are all contained in BIDiamonds.com Blog, along with other informative articles on diamond investments.
The decision about how much to invest in a particular asset class, such as diamonds, is one that has troubled investment advisors for as long as advisors have been in existence. So, it’s not unusual for you to have similar difficulty making a decision. Like all investments, the amount of funds you allocate to investment grade diamonds will be determined by your personal tolerance for risk and the size of your investment portfolio. Listed below are basic investment principles that will help you make a decision, along with some “real world” exceptions that you may have to make.
- Asset management protocol suggests that you not invest more than 10% of a portfolio in an alternative investment class such as diamonds, with no more than 5% to any asset within that class. I believe this is prudent advice for diamond investors, when possible.
- Real World: Unfortunately, it’s not always possible due to the high cost of investment grade diamonds. Many interested investors lack adequate funds to pursue effective diversification and simply elect to buy the best diamonds they can afford and diversify to the extent they can. Institutional investors are more apt to adhere to this protocol.
- Trying to diversify a diamond portfolio based on an equitable allocation of funds is not practical, because no two diamonds are the same or have the same value.
- Real World: Diversification is normally achieved by varying the size of diamonds and combining white and colored diamonds – not by an equitable allocation of funds.
- It will be important for you to acquire the largest, highest investment grade diamonds your budget will permit. There will be some smaller diamonds that you will want to avoid.
- Real World: Most investors realize that it is better to acquire a smaller, but higher grade investment diamonds than it is buy larger, lower grade diamonds. This recommendation is most often ignored when the purchase is not for investment.
- My recommendation to new diamond investors is that they start to build a portfolio with a purchase of a single diamond that will serve as an alternative investment and can be converted into an exceptional piece of jewelry. Investors seem to find comfort with this idea, even if the diamond never becomes a piece of jewelry. Investors that are more comfortable with diamonds and alternative investment ideas may want to make a more substantial commitment.
- Real World: Obviously, a single purchase is contrary to prudent investment management, but at least investors, with competent counsel, are being directed to the best possible diamonds for appreciation, based on purchase price and historical performance.
- If you have a short term investment horizon, diamond investing is not for you. The long term trend for investment grade diamonds is upward, but it has not been a straight line. You do not want to sell into a bad market.
- Real World: Very few investors have sold their diamonds.
- It is important that you acquire your diamonds at the lowest possible price, because the addition of a standard retail mark-up, in lieu of a consulting fee, will adversely impact your investment return.
- Real World: Clients of Bella Ideale Consulting Services (Bella Ideale) pay a consulting fee.
- Finally, every exception you take to sound investment principles increases your risk. This risk can be minimized with competent counseling, but a higher element of risk still remains.
- Real World: Bella Ideale is a consulting service – not an investment management company. You make the final decision on the diamonds you purchase and take physical possession of the assets. Bella Ideale continues to monitor your investment and provides periodic reports to you on performance.
I have tried to introduce you to the basics of diamond investment as well as offer some practical exceptions that you may be forced to adopt as you assemble your diamond portfolio. I hope that I have been helpful.
You are invited to comment below or ask questions on this article by contacting Bella Ideale Diamonds Consulting Service at info@bidiamnds.com or 855-261-0100 (Toll Free).
The Author: Paul Buchanan is a Graduate Gemologist, Graduate of the American Institute of Diamond Cutting, President of Bella Ideale Diamonds Consulting Service and has 30 years of experience in managing traditional investments and venture capital.
Yes, investment in diamonds usually is for the long term, however with natural fancy color diamonds you can feel quite safe, especially with red, pink, blue and green diamonds. With a little research it is possible to see that during the recession the prices and demand for natural fancy color diamonds increased. In fact I think it was the only property that increased its value (due to the extremely rarity) during the recession. Another huge advantage in investing in diamonds is that they are so small and portable!
Marina,
You are absolutely correct. In fact, estimates from professionals that sell fancy colored diamonds indicate that they have never gone down in value under a variety of economic circumstances. I include fancy colored diamonds as part of an investment strategy for certain investors. Do you folks sell fancy colored diamonds?
Today with technology, diamond wholesalers, retailers, and “Prosumers” – Investors stay informed by use pricing tools like the DiamondMaster App for monitoring diamonds global wholesale “list” values in 11 foreign currencies, in exchange to gold’s annual moving average, and in IMF’s SDR the basket of currencies unit. Diamond “global values” essentially un-pegged from the US Dollar when using the DiamondMaster App.
Mr. Prentice,
Thanks for educating me about DiamondMaster and the Troy Diamond Report. I will spend more time this evening on these subject. Thanks for your comment. Hope we can stay in touch.
Paul Buchanan
When looking to buy a diamond for investment, I know the larger diamonds are most rare and provide a nice return but is there a minimum amount that should be considered?
Mike,
Thanks for responding. Your question is not an easy one to answer, because most my clients have sufficient capital for investment in a diversified portfolio of diamond. A one diamond investment assumes more risk in my opinion. But, if you are determined to make a one diamond purchase for investment, I would select the largest and best quality diamond I could afford with the following qualifications: D to F color grade, VVS clarity grade, Excellent cut, GIA certification and no fluorescence. I would not personally make an investment unless I could afford at least 2 carat diamond with the above qualifications. The larger the better. You can check our diamond selection at bidiamonds.com for pricing.
If you have a large investment portfolio with greater purchasing power, I might suggest you consider fancy colored diamonds. Before you make this jump, I suggest you give me a call.
Paul Buchanan