Diamonds as an investment - Buying and selling for profit

Jewels and gems last a long time, so good sales people will make claims like this is an "investments" and "will always be worth more than what they cost". But that assumes the goods rise in value and you can easily sell them with low sale costs. Demand and supply is everything.

Jewels historically appreciate at about the rate money inflates; in the words of Dave Atlas – "Most luxury items we buy wear out or rot". Jewelry, and especially diamonds, can last forever and have more "intrinsic value" than cars and houses. Land has "Intrinsic value" and so too do gold and diamonds. But the "fashion value" can be fickle, unless the piece is a rare collectable.

To sell the biggest problem is finding a buyer, one who shares your taste and wants to buy what you want to sell right now.

However,
  1. Do buyers trust you? How do they know it is real? A jewelers name and reputation, like Tiffany, command a premium because of trust. You may loose that premium when you sell.
  2. Unless you are famous, you offer a buyer little or no prestige, and no flexibility, or service (e.g. ring sizing, appraisal etc.)
  3. Buyers usually only want the stone(s). They give you nothing for your setting.

Clothing stores have huge mark-ups; this we know from the end of season sales markdowns. But clothing stores turn their stock around 4 times faster than jewelers; so to make up for stock turns jewelers need very big mark-ups to stay in business.

So why buy jewelry as an investment?
  1. Not everyone trusts banks. In some cultures and countries often +10% of wealth is "portable". Cashing in gold and diamonds helped many Chinese escape from Indonesia in 1997.
  2. Some women consider their jewels as security or "running away assets" (few diamonds are returned if the relationship ends).
  3. Jewels are emotional or family investments; a band of diamonds marks a child's birth, a ruby bangle for a 40th wedding anniversary etc. They are usually an important part of an inheritance. The more love in the family, the higher the non monetary value.
  4. A $100,000 diamond ring has more 'investment' potential than a $1,000 ring. You do not buy a $1,000 painting hoping to sell it in a few years for $5,000. There is relatively less cost to selling an expensive piece; as the value goes up, seller's margins come down, just like in real estate.
  5. Less people are diamond investors. It is easier for a buyer to compare the prices of many similar cars, properties or shares. Jewelry requires a lot of specialized expertise.

OK, you are not buying jewelry to sell for a profit. But you want to buy something that will gain in intrinsic value. What is the best investment?
  1. Consider buying something that can be worn most of the time (not left at home for thieves) and you may not need to pay to insure it.
  2. A single diamond does not go up in value faster than say a pair or a matched set in a 3 stone ring.
  3. But a single stone may be more liquid than a collection. A single stone might cost less to set.
  4. “Investment diamonds must be D Flawless or VVS quality”. What rubbish! Rarer diamonds are the hardest for you to sell. Medium quality diamonds (with no visible imperfections or obvious discoloration) are more saleable, and go up in value at a proportional rate to rarer more expensive diamonds.
  5. Princess cuts are hot at the moment, but in a few years they will be passe. Heart shapes, marquise and other shapes come and go in fashion. Round brilliant cut diamonds are definitely the best most resell-able in the long-term.
  6. 90% of round diamonds are poorly cut. A clever buyer will buy a non-traditional ‘Ideal Cut' diamond that will fit into the new GIA and AGS best cut standards.
  7. Fancy colored pink diamonds may become rare if the Australian Argyle mine output falls as appears likely. But pinks are hard to re-sell.

There are lots of opportunities for those prepared to do some homework via Pricescope and the internet to both enjoy beautiful diamonds and secure a bit of diversity in your investments. But don't buy with a goal of making money by reselling, unless you make it your raison d'etre.

Best of all, many vendors will trade diamonds up. Some are especially generous with stones they sold in the first place. The only caveat is that that you must spend the same amount as the original purchase or the trade in value.

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