Investing in diamonds - hard stuff

Posted by Josh Conibear in Personal Finance on 7 March 2014 - Josh worked as a Credit Analyst at checkmyfile until 2014

Is now the right time to invest in diamonds? For many of us, this is a totally theoretical question – the mortgage and credit cards will always have a first call on our income – but it’s nice to check out the options should the Lottery come good just for once.

Even for the experts, investing in diamonds is never straightforward, as valuing diamonds is a very tricky business. Unlike other precious commodities such as gold, the sheer variety of individual pieces rules out any simple cost-by-ounce pricing mechanism. Valuation depends on the four Cs – Carat (weight), Colour, Clarity and Cut and of course some degree of subjective assessment.

Following the loss of control of the market – DeBeers once controlled 80% of all sales – and the discovery of new diamond mines over the past twenty years – which resulted in a volatility in prices not before seen, calm has largely been restored and investors are now looking again at diamonds with a more positive outlook. Certain types of the rock, such as coloured varieties, have held their value better over the past years than other equity investments.

So if you’re in the market, what do you need to look out for?

As in most things in life, size matters. Between 1990 to 2011, the value of three-carat diamonds increased by 145%, compared to a rise of 171% for five-carat diamonds according to the Rapaport Diamond Trade Index.

Colour, colourless (or “white”) diamonds are measured on a sliding colour scale in which the rankings are D (the best blue white) and E (exceptional white). Buyers tend to avoid buying any diamond that registers lower than grade H, as this is deemed too yellow and will stand out like a sore thumb when placed with diamonds of better quality.

Clarity grades range from Flawless to Imperfect, which is pretty much measurable and is easy to understand.

Cut is the most important of the four Cs because it is the skill of the cutter that gives a diamond its brilliance. The best cutters get to work on the biggest diamonds.

Clearly expert knowledge (or bought-in expertise) is an essential part of buying diamonds but the first rule of buying is very easy to grasp. This is always to avoid getting misled by jewellers’ mark-ups. If you’re curious about diamonds and want to get a feel for prices, check out Rapnet.com.

You can invest in diamonds without having to get your hands dirty by actually having to handle them. Exchange Traded Funds (ETF) -common in the gold market - are rare in gems and – be warned - are unregulated. But funds are springing up to track the fortunes of diamond miners and associated companies. The US-based manager PureFunds, for instance, recently launched what it claims is the first “pure-play” diamond industry ETF.

In the UK, Pink Iguana offers a tax-efficient Enterprise Investment scheme (EIS) which allows you to invest directly in rare diamonds, subject to a minimum investment of £10,000 – a lot to lose if things go the wrong way.

Diamond investment is always going to be risky business, emphasised by a BBC investigation in January which uncovered a rapid growth of diamond boiler-room scams, with vulnerable targets conned into dodgy schemes often involving non-existent gems.

Yet the market fundamentals do look strong. Arguably, the three most important factors in the supply and demand equation are the melting of the De Beers stockpile, a significant decline in the rate at which kimberlites (the host rock for most diamonds) are being discovered, and the growing development of the engagement ring market in new consumer economies like China.

Of course, if you’re the kind of market bear who thinks China could become the third wave of the financial crisis because of the toxic debt in its banks, the demand for celebratory sparklers could fall off a cliff. But arguably that’s where the gems would come into their own as a portable store of value amid turbulence.

Diamonds could in fact be seen as an each way bet for investment, but equally the risk of losing money is crystal clear.

Now, where did I put last Saturday’s Lottery ticket?

The Cost of Incorrect Information on Your Credit Report

Your credit file is compiled from a number of different sources, including payment history from each of your lenders (past and present) and public data as reported by local authorities and courts. The majority of people find that everything held about them is correct, but due to the large amount of information being shared, errors in the information reported can happen, which can lead to issues when you go to apply for credit.

Published on 2 Feb 2018 by Tom Blandford

Full Article

Your Guide to Open Banking

On 13 January, the UK banks embarked upon arguably one of the biggest changes to personal finances since the introduction of computers. Open Banking is aiming to make it easier for banks, lenders and consumers to access and share information, with a view to creating new products and opportunities through innovation and increased competition.

Published on 15 Jan 2018 by Jamie Mackenzie Smith

Full Article

HMRC Bans Credit Card Tax Payments

From 13 January 2018, it will no longer be possible for consumers to use a personal credit card to make a payment on HMRC’s Self-Assessment tax portal. Historically, this has been a popular option as it allows what is often a considerable sum to be deferred.

Published on 12 Jan 2018 by Tom Magor

Full Article

How to Get the Best Deal When Buying a New or Used Car

Buying a new car is both exciting and expensive, but if you know where to look and when, you can grab yourself a bargain. If you take a little time to look into finance or loan deals as well, you can bring down the overall costs significantly.

Published on 11 Jan 2018 by Kevin Pearce

Full Article

Are football clubs exploiting their fans

With Premier League teams under huge pressure to remain in the top flight of English football, the amount lavished on transfer fees and player wages have soared in recent years.

Published on 8 Jan 2018 by Sam Twyford

Full Article

What The 2017 Autumn Budget Means For First-Time Buyers

Wednesday’s autumn budget brought great news to would be first-time homeowners: if you’re buying a home up to the value of £300,000, you won’t have to pay stamp duty for the property. This, the Conservative Party estimate, will benefit 80% of first-time buyers, saving them potentially thousands of pounds on the total cost.

Published on 28 Nov 2017 by Jamie Mackenzie Smith

Full Article

Blacklists - Ten things you probably didn't know

1. Blacklists are not unlawful. No lender is compelled by law to give credit or to give any reason when declining credit. Each may consult several sources of information before making a decision, including any form of list that may exist. Any list containing personal data is automatically regulated by the Data Protection Act 1998.

Published on 9 Oct 2017 by Barry Stamp

Full Article

Is a credit building card a good idea

A credit building credit card is most often used by people that are either looking to improve their credit rating or take out their first credit card.

Published on 24 Mar 2017 by Kelly Luff

Full Article

Which Credit Report Information Can Landlords See

Whenever you rent a property, you will be required to pass some checks set by the landlord or letting agent to prove that you will be a good tenant and that you’ll be able to afford to rent the property.

Published on 7 Mar 2017 by Kevin Pearce

Full Article

Impacts of late payment on your credit card agreement

We’ve all done it before – had that mad panic when we’ve forgotten to pay a bill. But what happens if you do forget to pay your credit card by the monthly repayment date?

Published on 20 Feb 2017 by Kelly Luff

Full Article
keyboard_arrow_left

keyboard_arrow_right

We have loads of great customer reviews