With current market fluctuations and conditions, many more people are looking for alternative assets to add to their portfolios. While many investors have traditionally turned to physical commodities like gold and silver, diamonds are becoming an increasingly popular investment option. If you are looking for new ways to diversify, here are a few tips for beginners investing in diamonds.
Why Are People Investing in Diamonds?
Here are a few of the most common reasons why more investors are turning to diamonds as a new portfolio option.
The recent stock market volatility has many nervous investors looking at alternative assets. Physical commodities like gold, silver, and diamonds have always been a popular option to protect investors. However, there is an increasing interest in physical commodities that are not correlated to the stock market as prices continue to fluctuate.
Another reason people are investing in diamonds is their portability. They are small and easy to transport. Their size also makes them simpler to store than other types of assets.
Diamonds are the hardest known substance on Earth. Therefore, there is little to no chance of accidental damage or breakage. And, you won’t have to pay for maintenance or upkeep either.
Many owners worry about theft or loss. However, you can insure your diamonds as an extra precaution to protect your assets.
Market demands have always been high, so it’s very unlikely that diamonds will lose value. That’s why some think of them as “inflation-proof.” As mentioned above, some investors use them to hedge against inflation and market fluctuations. This is usually a smart financial move since their value keeps up and often outpaces inflation rates.
Diamonds have an intrinsic value because of their limited supply and high demand. The fact that there are no open markets or exchanges also drives up prices. Historically, there has been a steady demand which is continuing to rise.
The Psychology of Security
There is also something to be said about the security you have from a tangible and valuable asset like diamonds. Having something that you can see and feel makes it more real than buying stocks and bonds. Keeping them nearby or on your person may make you feel that your investments are more secure.
Lastly, you shouldn’t overlook their enjoyment factor. Diamonds are an asset you can enjoy without depreciating value. You can mount and wear them, using them for more than just investment purposes.
What Are the Risks?
As with all investments, diamonds also carry risks. The first comes from a lack of price transparency. It’s hard to place a standard value on them without an official price index. It’s even more difficult with rare and colored diamonds. Although diamonds are expensive, you need to become an informed buyer. Markups erode their investment potential. And, if you aren’t careful, you could be taken advantage of and overpay.
Another factor to consider is physical storage. Theft is the biggest threat. Therefore, you’ll need a safe place to store your assets. Then, there is the low liquidity and the time it takes to find serious buyers. And last but not least, it could take years for your diamonds to appreciate. So, if you’re looking for assets that have quick turnaround and resale value, diamonds probably aren’t the best option for you.
10 Tips for Beginners Investing in Diamonds
Despite these risks, many investors are not deterred. If you are interested in diamonds as an alternative asset, here are 10 tips from the experts for beginners who are investing in diamonds.
1. Do your research and get an expert opinion.
If you are just getting started, learn the basics and get familiar with diamond jargon. You can start with the 4 Cs of diamonds – carat weight, cut, color, and color – and how these factors affect their value.
But, remember each diamond is unique. Before you purchase anything, find a trusted professional to gain more knowledge about specific items. You should seek out multiple opinions before investing.
2. Know your financial goals.
You should also be aware of your financial goals. Diamonds are a great option for safe, long-term investments. However, they aren’t so great if you need a quick turnaround or appreciation.
3. Know your financial limits.
There’s no way around it…investing in diamonds requires more of an initial investment than other assets. But, this will be part of your portfolio. However, you should still know your financial limits and how much you are willing to spend.
4. Always look at the documentation.
This should go without saying. But, only purchase certified diamonds. Real gemstones come with a GIA or IGI certificate from the most renowned geological labs with the strictest standards. And, anyone you sell to will expect these documents as well.
5. Compare prices.
As with all large purchases, you should compare prices. Pricing on diamonds can be subjective. Especially since there isn’t a transparent pricing platform. But, you can compare prices for similar stones through online retailers or local dealers to make sure you are getting a good deal.
6. Look for quality and resale value.
When it comes to diamonds, you don’t want something that everyone else has. Yet, you want to buy something of quality that will have future resale value. Look for high-quality gems and desirable cuts that will bring a higher resale value.
Any advisor worth their salt will tell you that diversification is the key to protecting your portfolio. That’s why many investors turn to diamonds as an alternative investment. But, don’t put all your proverbial eggs, or in this case diamonds, in the same basket. Purchase different types, cuts, and sizes. You never know which one will increase in value or which one will be easier to sell down the line. And, if you need to liquidate a portion of your assets, it’s easier to sell smaller stones than with a single large diamond.
8. Mounting a diamond adds appeal.
Although the mounting isn’t included in the valuation, it can add appeal. While the buyer likely has their own plans, mounting it can showcase the diamond. Not only is it much more appealing than a loose diamond, but it can also help you sell it faster. Mounting the stone also allows you to wear it and show it off to potential buyers.
9. Skip the middleman.
One of the biggest mistakes beginners who are investing in diamonds make is buying from your local jewelers. Retail prices are much higher which erodes their value. Rather than pay the markup from brokers taking their cut, look for sources higher up the distribution chain. You can cut out the middleman and try to buy directly from manufacturers.
10. Don’t be afraid to speak up.
Finally, if you have questions or concerns, don’t be shy. Speak up! Ask consultants, experts, and online forums for advice. Or, talk to other investors about their experiences. Learn everything you can before delving into the world of diamonds. Knowing the market could help you find a diamond in the rough.
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.