Are diamonds an investor’s best friend?
Precious stones can put some sparkle into an investment portfolio, but the novice is advised to know all about the 4Cs and to consult the experts before taking the plunge
Do diamonds have a place in the average punter’s investment portfolio? It is important to divorce emotion from this investment decision.
Diamonds are beautiful, desirable and rich in history. But they don’t pay annual dividends, like shares, and can’t be rented out, like real estate. So you’re looking only at an increase in the capital value of the gems.
You must ask yourself for how long you want to hold this investment, and if the value will increase to the desired level in this time period. Look at the trajectory of supply and demand, remembering that the phenomenal prices paid at auction for large, rare diamonds are no indicator for the average investor in smaller diamonds.
Diamonds have a lot going for them as investments. They are portable and easy to store safely. They cannot deteriorate with age, require no maintenance and are very hard to damage. Unlike an art investment, they are not subject to a potential buyer’s likes or dislikes.
Today’s diamond market is unregulated in terms of supply. In the past, one big player, De Beers, dominated the market and controlled supply to maintain the price level. There have been fluctuations, with a drop in 2005, a high in 2007, drops in 2008 and 2009, and a high again in 2011. But any investment sees fluctuations.
Both Morgan Stanley and Bank of America Merrill Lynch expect polished diamond value to expand at a compound annual growth rate of 4 per cent between 2016 and 2022.
Factors which influence returns on investment in diamonds include pressure from anti-mining activists with environmental concerns; political changes in individual markets such as the anticorruption campaign in China; consumer taste in jewellery; and financial crises. The list goes on.
If you are taking the plunge into the diamond market, be aware that you are not dealing with a single defined item. Within the world of diamonds, there are many variations – some of which are more desirable than others at any given time.