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Are Diamonds a Good Investment?

"Diamonds are a great investment because their value only goes up."

  Are Diamonds a Good Investment
This myth was actively propagated by De Beers. The conglomerate maintained such complete control that it drove a steady, albeit modest, annual increase in diamond value for decades. De Beers fought to control price volatility so the public would believe that sinking their savings into a diamond is a sensible step. It encouraged people to view diamond jewelry as an investment to be held onto long-term.  This illusion was actively fostered by the De Beers advertising campaign that proclaimed "A diamond is forever." One of the implications of that terminology is that diamonds are to be held onto indefinitely. This was vitally important for maintaining the artificial market value of the gems.

Think about it: By the early 1900s, there were an estimated 500 million carats or more-10 times the cartel's annual production—in private bands. The entire market for new jewelry was easily satisfied by the annual output from the world's diamond mines. If everyone who owned diamond jewelry decided to resell their stones, the market would be deluged. Diamond prices would plummet faster than a barrel going over Niagara Falls.

The truth is that only educated retailers have a hope of profiting from investing in diamonds. Everyone else is strongly advised to look elsewhere. A 1970 incident provides a great illustration of this: Dave Watts, editor of a British consumer magazine, conduct an experiment to measure the investment value of diamonds over a year On his first attempt, he was cheated by one of the jewelers who surreptitiously switched his stone for a smaller one during the appraisal. When Watts tried again, he found that after just one week, the highest offer he received fig a diamond he purchased for £2,595 was just £1,000.

In another telling incident, a wealthy New Yorker bought a diamond ring from the famous luxury jeweler Tiffany & Co. in 1976. When she decided to cash it so that she could exchange it for a different piece of jewelry, she was informed by Tiffany that they have a strict policy against buying back diamonds. She was directed to a jewelry outlet on Fifth Avenue, but one dealer after another offered only exchanges or a percentage of the proceeds once they sold it for her. She took the ring home instead.

Like cars, the moment a consumer buys a diamond, its value plummets. Few reputable dealers will buy back diamonds from consumers, because it puts them in a very uncomfortable position. The dealer's keystone markup is 100% to 200% of his outlay. Since dealers will only pay wholesale prices when purchasing, their best offer is a terrible insult to the consumer. No one wants to hear that they can make back less than half of the $3,000 they paid for a diamond ring. Nor are dealers interested in destroying the perception that diamonds make a good investment.

Instead, when a dealer is approached by a consumer who wants to sell, they will steer him to retailers who specialize in buying back diamonds. Empire Diamonds Corporation in the Empire State Building is the most famous example. In the best case, they will pay 90% of the current wholesale price for a diamond ring. A typical diamond ring that was sold for $2,000 will net only $600 on resale.

It's true that a large, flawless diamond can grow in value over time. This is particularly true for diamonds that have a deep and desirable color, called "fancy" in the industry. However, investment-grade diamonds remain the exception and a newcomer will lose on his investment every time, guaranteed.

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