Everybody knows what a diamond is worth.
Well, kind of. What ideas come to your mind when you look at a gem like this?
Status? Luxury? Love? I haven’t met many people who own real diamonds. But everybody agrees they are worth a lot. Around $1,000-$2,000 for a fairly regular sized one.
Now, would you ever buy one? Probably, if you have nothing better to do with your money.
Which is not the case.
It’s not like it’s essential for life. Aside from its rarity and beauty, it doesn’t seem to offer any intrinsic value.
Then, what’s all this hype going about? Are diamonds a good investment or not?
Are Diamonds a Good Investment?
Go ask anyone who bought diamonds. They will tell you they don’t regret the purchase.
Go ask anyone who sells diamonds. They have 1001 reasons why you should buy one.
Typical, isn’t it? The seller has incentives to sell you stuff. And buyers try to convince themselves they made a good purchase, especially when they spent a lot.
Look, diamonds are popular for many reasons:
- Advisers talk well about them
- It’s reasonably rare to find, which limits the supply
- Other people recognize its value, especially for romance
But at the same time, we can counter those reasons:
- What if sellers stopped promoting these gems?
- What do you say about rubies and emeralds? Some of these are rarer than diamonds, and that doesn’t make them worth thousands of dollars
- What if, tomorrow, something else replaces diamonds as a symbol of love commitment?
I’m not saying they’re not valuable. But it doesn’t take you a lot of research to find all the cons. It seems you’re more likely to lose money on diamonds and not make any good returns.
How do we arrive at this conclusion?
Why Diamonds Aren’t an Investment
Before we get into the risks, keep in mind that diamonds are widely accessible. You don’t need to be a millionaire to get beautiful, natural diamonds. Buy diamonds anywhere from $300 to all the way up to $30K, if not millions of dollars.
But even if you only spend a few hundred, you may not get the returns you expect. Why?
#1 It will never be worth more than you paid for it
Let’s put aside the market valuation for a moment. If you look at the intrinsic value, you can only expect gems to be worth less and less as they become older.
You may argue that a diamond lasts “forever,” but the age still affects its price. It’s not very different from buying a new car. The moment you drive away from the lot, it’s instantly worth 20% less.
You can’t get the same price even if you sell it in the same store five minutes later.
Interesting. They sell you diamonds for a price they wouldn’t accept themselves. Why is it?
#2 Diamonds have a small market
This isn’t the same as exchanging dollar bills, gold, or some other currency. As stated, there’s little intrinsic value. If you want to sell your diamonds, you need someone of these people:
- A diamond seller who’ll probably lowball you
- A collector who mostly cares about the carat, color, cut, and clarity
- A future couple who wants a gift for their ceremony
Think about it. If you had to live alone on an isolated island, how much would it be worth?
You may say: “Not much. But we could use the same argument to diminish the value of anything and good old money as well.” The difference is, real money is liquid. You go to any bank or online exchange: you can buy or sell instantly.
With diamonds, it’s hard to find a buyer, let alone get the price you want. Most of the diamond’s worth comes from extrinsic value. That means you have to find someone who believes it’s worth that much, or that it will rise in value.
I don’t know about you, but I don’t like where this is going. Do you know what other things follow the same pattern? Pump-and-dump schemes.
We can go even further and compare it with MLMs and marketing pyramids. The only way for a scam victim to recover the money is to move the burden onto someone else.
#3 Diamonds are risky
We all know that diamonds are the hardest material on the Earth (resistant to scratch only), which is an impressive selling point. But you won’t do much with it other than keeping it on a jewelry box or use it as part of a tool in construction projects.
Even the smallest diamonds have a high value. The pink diamond, for example, can be worth around $20,000 per carat (yes, it’s ultra-rare).
But because they’re so small:
- They are easier to lose
- They harder to cut
- It’s hard to certify them
- They’re easy to break
If your $20,000 diamond falls from the table, well, you just lost 99% of its value. It’s physically fragile and valuable.
Compare that with gold. If you’re brute enough to break a gold ingot, that doesn’t change the price much. A manufacturer can just melt it and produce a new one. And gold will, looking at the long term price, almost always appreaciate in value.
The Bottom Line
Unless you’re lucky, do NOT expect to earn much of anything from your diamonds. And even if you do, there are so many other securities with better ROI. It’s NOT an investment, but a symbol of love and status. Instead, buy them for personal use, or for your wife (make sure it’s certified).
And if that’s the case, there’s no difference in paying $300 or 100X more for a natural diamond. The moment you pay on the higher end, you’re being a victim of speculation.
Think twice. Diamonds are a liability more than an investment.