When 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.