Last Updated on May 25, 2021 by Filip Poutintsev
There’s no denying that diamonds are some of the most expensive gemstones in the world.
A one-carat diamond costs around $2,500 – $18,000.
Whether you’re keeping it for yourself to enjoy or thinking of gaining profits from it over the long term – diamonds are certainly a good investment.
But then, there are a few things you need to know before you let go of your hard-earned cash for these precious stones.
In this short guide, we tackle the pros and cons of investing in diamonds.
Table of Contents
- Why Invest in Diamonds?
- These gemstones are easy to store and maintain.
- Downsides of Investing in Diamonds
- Conclusion: Are Diamonds Good Investments?
Why Invest in Diamonds?
First, let us discuss the benefits of investing in diamonds.
Diamonds Are Resistant to Financial Crashes
Diamonds are considered an inflation hedge.
This means it protects against the diminishing power of currencies caused by inflation. Therefore, the value of diamonds is not affected by financial crashes in the global market.
They Are Recognized All Over the World
Diamonds are valued anywhere in the world. If you buy one from, say America, you can sell it at the same price or even higher, in Europe.
Note, however, that right now, no economy accepts diamonds as media of exchange. You have to trade it for cash to monetize your diamonds.
Diamonds Have No Capital Tax Gains
Capital tax gains are imposed on the gains that are presumed to have been realized from a sale. Things like real estate, cars, and other assets are subject to capital tax gains.
Another major benefit of investing in diamonds is that if you buy one and sell it afterward, you need not pay capital gains tax. There is also no VAT rate for purchasing diamonds (and gold). These stones only become a subject of VAT when they are incorporated in jewelry.
They Promise Long-Term Profitability
The law of demand and supply suggests that as the demand for a good or product increases and there are limited resources, its price increases.
On the other hand, when there’s a surplus or overflow of supply and the demand is low, the price decreases.
Since diamond is recognized all over the world and is considered as one of the most valuable gemstones, the demand for it is always high.
High-quality diamonds (those with acceptable carat weight, clarity, and color) are rare. It takes 1 to 3.3 billion years for a diamond to form naturally, so you can just imagine how precious it can be!
With all of these taken into account, diamonds will never lose or decrease their value. Rather, it will go up as time goes by.
These gemstones are easy to store and maintain.
You need not purchase a vault or rent a storage facility to store your diamonds.
You can simply keep them in a jewelry box or something similar. Diamonds are the hardest stones and are resistant to scratches. Only a diamond can scratch another diamond.
So, if you have a collection of diamonds, make sure each stone is individually placed in a pouch or compartment (in case keeping in a box).
Downsides of Investing in Diamonds
Like all forms of investments, there can be some cons in owning diamonds too.
They Require Huge Capital
To really make money from diamonds, you have to invest in high-quality diamonds.
You don’t have to purchase rare diamonds as they can be difficult to resell due to their exceedingly high price tags.
The most important thing is to buy certified. Choose stones that are certified by some of the most highly respected labs like the GIA or the AGS.
The shape of the diamond can be a factor too. Round brilliant diamonds are the most popular which means you have a bigger market if you invest in them.
Always buy diamonds of top quality. Learn about the 4Cs – color, clarity, carat, and cut.
Synthesized Stones Pose a Threat to the Market
Currently, there are no lab-formed diamonds that are as beautiful and precious as natural diamonds.
But many companies are continuously working on perfecting the technology that would make artificial diamonds look and feel like real ones.
This means people can buy diamonds at a much cheaper price, and therefore prefer lab-made ones over natural diamonds.
Diamonds Are Easy to Steal or Lose
Since they are tiny gems and can easily be carried around, diamonds are easy to lose.
They can be easily stolen too.
Make sure you are properly storing your diamonds. Keep them in a safe place and avoid carrying them around unless necessary.
Conclusion: Are Diamonds Good Investments?
Yes, they are.
Given the high monetary value of these gemstones, along with the fact that they are considered an inflation hedge, you can purchase diamonds now and resell them later for a much higher price.
Just make sure you are investing in top-quality diamonds to maximize your gain and take good care of them.