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2 posts from December 2007

Investment Quality Diamonds

MoneycalculatorWhen we here the phrase “investment quality” with regard to diamonds, we know our client has been to a jeweler who has used that phrase in their sales pitch on a high color and high clarity diamond.  The irony is that the typical jewelers who are using this phrase are also the ones who are charging prices that are double or more our everyday prices.

When I think of good investments, I think of assets that are bought low, sold high, were easily sold, and that appreciated a desirable amount.  Diamonds are expected to appreciate the next 5-10 years because worldwide demand is increasing and worldwide supplies are decreasing so they satisfy that part of the good investment definition.

One challenge with selling diamonds is finding a willing buyer when you want to sell.  While every diamond shopper would like higher color and clarity, the reality is that bigger size, higher color, and higher clarity all lead to much higher prices, reducing the number of potential buyers.  Often an F color, VS1 clarity diamond is easier to sell than a D color, IF clarity diamond because there are many more buyers at half the price for the same carat weight.

For some reason many diamond shoppers who are seeking “investment quality” diamonds leave their common sense at home, with regard to the economics of their purchase.  If you asked most investors if they would be willing to pay 100% to 125% commission for a stock transaction, they would laugh at such a foolish question because they know the stock would have to at least double in value before they could break even.  Yet, these same savvy investors walk into a jewelry store, especially high end jewelry stores, and pay 100% to 125% premiums over what they have to pay for an expensive diamond ring.  They have just violated the key “buy low” rule of investing. 

When a customer buys at Tiffany’s, Cartier, or any high-end jewelry store, their purchase typically depreciates about 60% when they walk out the door.  If they hope to break even when they want to sell the item, they have to wait until the value appreciates the 100% to 125% back to what they paid.  The smart investor buys diamonds and jewelry the same way they buy stocks; buy at a low price, buy items that will appreciate, and buy items that are easy to sell.

My advice when purchasing a diamond ring is first to buy what the person wearing the ring will enjoy.  Then, with respect to investment value, buy a quality that will be in high demand and affordable to shoppers when you want to sell.  However, what is most important is to buy at a low price, not a jewelry store price, so you get to keep the appreciated value, not give it to the jeweler up front.


Remember Jewelry Insurance for Holiday Gifts

Jewelryappraisalsample As the holidays approach and shoppers are busy picking up special gifts, it is time to give some attention to making sure you have adequate insurance for your personal valuables.  Most items you purchase are receive a gift are covered as personal property under your homeowners or renters insurance.  Therefore, your new flat screen TV, iPod, computer, golf clubs, sofa, or lamp is probably covered if your house or apartment is insured.

However, some articles (jewelry, coins, stamps, furs, firearms, and silver flatware for example) have limits to their coverage.  Since my business is diamonds, I will focus on the jewelry category.

Most homeowners’ policies have a limit of $1500 to $2500 for jewelry per event.  That means if someone breaks into your home and steals all of your jewelry, you only get the $1500 to $2500 limit of your policy.  While most policies cover damage and theft, many policies do not cover accidental loss so if you lose your engagement diamond ring you might be getting nothing.

To adequately protect your jewelry items, you need to add a special rider to your standard policy.  This rider, also called a schedule, typically required to provide a record of value that schedules the item’s coverage limit.  For jewelry, an insurance appraisal is often required to accurately describe and value the scheduled item.  Unlike most other property insurance, the scheduled property rider generally does not have a deductible.  The scheduled rider provides coverage for loss, damage, and theft.

Unlike your sofa, whose value automatically inflates each year with most replacement types of homeowners’ policies, the scheduled property rider for jewelry limit of coverage stays at the value listed on the insurance appraisal.  That means that if the value of your jewelry appreciates over time, the cost to replace your jewelry in the future could be substantially more than what you paid.  Make sure your insurance coverage keeps up with the replacement value of your jewelry.  Most insurance companies recommend updating jewelry insurance appraisals every 3 to 4 years.

The price of jewelry insurance varies by insurance company, value of the jewelry item, and geographic location but typically runs in the 1 to 2 percent of value range for annual premiums.  We are amazed at the number of clients who do not get jewelry insurance, thinking they will save a few dollars in premiums.  When something happens to their valuable diamond ring, they learn the meaning of “penny wise, pound foolish” the hard way.