Diamonds are a girl’s best friend but are they an investor’s?
This sector is primarily for investors who have resources and would like to diversify away from the stock market and other traditional investments, according to Alternative Investment Coach.
The opaque sector does not make it easy for prospective investors to evaluate risk factors and analyse profit opportunities. Coupled with inflation, these tend to complicate investment decisions too.
For those looking to diamonds as an alternative investment class, here are some basic pointers to consider before putting money into these precious stones.
Understand the Four Cs
Before you start buying diamonds for investment, be sure you have an understanding of the four Cs commonly used to grade diamonds – carat, colour, clarity, and cut of the stone. These ratings determine the quality and rarity of the stone, which will, in turn, affect its price.
Do Not Buy From a Retail Shop
Diamond jewellery bought from a retail shop will often have been marked up in price by up to 50% due to additional costs such as marketing and craftsmanship, according to Forbes. Additionally, even if the retailer offers a buyback programme, they will only repurchase the piece back from you at a fraction of the original amount you paid for it, meaning you would have run a loss on this investment. Instead, buy a stone from a wholesaler or dealer – which is why you need to understand the four Cs so you are able to get the best bang for your buck.
Buy Only Certified Stones
When you decide on a stone – or stones – to invest in, be sure that you also obtain its certification too. The two trusted diamond laboratories that investors rely on are the Gemological Institute of America (GIA) or American Gem Society (AGS).
Invest in Diamond Companies
Instead of buying physical stones, an article by CNN suggests you consider buying stock in diamond companies as an alternative. While you may not own an actual diamond, stocks in diamond companies have higher liquidity compared to used jewellery. There is also a higher growth potential, if you pick your stocks well. In Singapore, three SGX listed companies that focus on jewellery are Aspial Corporation, Soo Kee Group and TLV Holdings .
Buy Diamonds on an Exchange
You can also buy investment grade diamonds on a commodity exchange, such as theSingapore Diamond Investment Exchange (SDiX), which is the world’s first electronic exchange platform in physically settled diamonds. All diamonds listed on the SDiX are graded by the GIA and remain in storage at the Singapore Free Port or in Mumbai, India.
The potential for investing in diamonds is large, with only 5% of the global diamond trade – worth more than US$80 billion in 2014 according to De Beers – bought for this reason, rather than for jewellery, according to estimates by Bain in a Wall Street Journal article.
Be Prepared to Put Down Big Bucks
In these challenging economic times, the diamond market has also taken a hit, with the value of diamond jewellery sold to consumers in 2015 valued at an estimated US$79 billion – down from US$81 billion in 2014, according to De Beers’ 2016 Diamond Insight Report.
To hedge against market uncertainties, investors may want to consider buying diamonds at the higher end of the price spectrum, as these have the advantage of rarity.
William Lamb, president and CEO at Lucara told CNBC that diamonds priced at US$50,000 and above are generally regarded as investment-worthy. He said, “When we look at investment stones, we generally look at a price point of anywhere between $100,000 – $250,000. Those diamonds, because of their rarity, have always appreciated in value so there is a price point in terms of where the investors will start to see the sustainable growth and the store of wealth which is what an investment diameter represents.”
Consider Coloured Diamonds
For the ultra-wealthy, coloured diamonds could make for canny investments as they have surged in value due to their rarity. While pink, blue and red diamonds may cost 10 to 20 times as much as a similar high quality white diamond, says the New York Times, these precious stones also have a track record of offering double-digit returns.
However, while white diamonds can be graded based on the four Cs, there is no such scale for coloured diamonds, which makes them more suitable for long-term investments. “Coloured diamonds don’t have a price list or somebody managing the value,” says Yaniv Marcus, founder of the Diamond Investment and Intelligence Center, in the New York Times article. “It’s a true supply-and-demand free trade. It’s like real estate. It’s value is what someone will pay for it.”