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How to invest in diamonds? part 3

How to invest in diamonds?

So what to buy? What to be careful not to fall into the trap of a clever but not entirely honest vendor? In this article I will specify the principles that should be followed when choosing a diamond, so that our investment does not generate losses but the expected profits.

Minimum duration of the investment in diamonds

No one (as in the case of classic investment tools) can guarantee an exact rate of return on this method of capital multiplication. However, history shows that a diamond investment, if well planned, should yield rates of return higher than term deposits or safer investment tools only two years after the purchase of a stone.

The longer the storage period of the stone, the greater the profit generated. Diamond is not a speculative tool - when you buy a stone even at an attractive price and after a few months you'll want to cash your investment, you'll no doubt lose it. The seller was rewarded with a commission on your purchase, the price you paid for the jewel was not necessarily so attractive, the buyer will surely want to underestimate the value of the stone in order to gain as much as possible on it.

You should be informed about the current value of the stone and how much it can be sold. A reduced selling price is a phenomenon analogous to the' liquidation fee' of any traditional investment vehicle, a hidden' commission'.

Realization of profit on a diamond investment project

Remember that a diamond investment is an alternative investment. Just like real estate, gold, silver, fine art, fine art, antiques, or recently popular wine or whisky, you need to find a jewel merchant to make a profit. Renowned distributors of investment diamonds guarantee the purchase of the purchased stone.

Investment diamonds can be sold from a jeweller, a private investor or via international electronic diamond purchasing and sales platforms, so that the marketplace is endless. It is also possible to place the stone in a commission - it will be put up for sale, but it will be in your possession until you find a merchant.

Certified investment diamonds will be priced against the same parameters regardless of the appraiser or place of sale. The process of profit realization may take a long time - it may take a month, two or many months. You're doing the same with selling an apartment - knowing that it's not a very liquid asset you're looking for a merchant who will offer you the most reasonable price.

What else should you pay attention to when investing in diamonds?

Let's look at real, transactional prices of investment diamonds published by Rapaport Diamond Report. Focus on the most desirable 1,3 and 5-carata stones in diamond-grinding, with good or very good grinding proportions.

In November 2009, a 1 carat diamond in the purest white D colour and impeccable IF purity cost $23100. The same tile in terms of purity, but the colour G was already half cheaper - it cost $2,100. The D-colour stone, but the VS2's purity cost only USD 8600. The investment diamond of 3 carat diamonds in D colour and IF purity cost 63400 USD. In colour G and the same purity it was worth USD 32600.

The payment for a 5-carat diamond of D colour and IF purity was USD 123900 per 3,000-USD 123900, while the stone of the same parameters, but G colour was half of that value (US$ 60000). So we can see that stones looking at first glance similar (the difference between the shades of white D and G is almost unnoticeable to the naked eye, as well as the difference in the scale of purity of the jewel) can vary several times in price.

So what to buy? Do I choose the largest stone I can afford, or do I choose the largest stone I can afford, or a smaller stone with the highest quality and the same price? The answer to this question is not obvious and depends on many overlapping factors.

The size of the stone determines to a very large extent its price, but also the rate of its price increase over time. Theoretically, an investment in diamonds can be started by purchasing a 0.5 carat jewel, but the advantageous (at least above inflation) rate of return is brought by stones weighing from 1 carat to higher. A 1 carat stone should yield a rate of return on investment of at least a few percent per annum.

 History shows that the price of 1-carade diamonds in E to I colour, the purity of VVS1-SI2, good or very good proportions of diamonds in diamonds increased in 2008 by 7.4% on average (up to 24%), while the profit from such an investment in 2005-2008 amounted to an average of 11% (maximum 30%). Three-card stones of similar parameters increased in 2008 on a similar scale as 1 carat stones, but in the years 2005-2008 the average price increase was already 24% (maximum 48%).

Looking at the increase in prices of 5 carat stones with similarly similar parameters, we are even more astonishingly opening our eyes - their price increased by 12% on average in 2008 (some stone groups increased by 59%), and in 2005-2008,5 carat investment diamonds increased by 67% on average (in some groups as much as 163%)!

The first conclusion comes on its own - it is worth investing in larger, less common stones with good other parameters. However, we should not forget about the process of liquidation of the investment - are we able to cash the diamond at a high price and enjoying the virtual profit generated by our jewel? Is it easy to find a buyer when the price has risen so high? The answer to this question is not unambiguous.

In my opinion, it would be more sensible to purchase stones that are somewhat smaller but more marketable, while accepting a lower rate of return. Similarly, the investment diamond "4C" is worth buying a more "popular"stone with a slightly worse shade of white and purity, as the highest parameters may be more difficult to market due to the high price. My personal type is now 1 or 3 carat stones in diamond-shaped grinding with proportions of very good or good, F-I colours, VVS2-SI1 cleanliness.

Currently they are not too expensive, so sales should not be cumbersome. On the other hand, the attractiveness of the remaining parameters of these jewels will increase their prices over time. The quality and proportions of the diamond-shaped sanding above all other parameters must always be appreciated. In my opinion, they are the biggest trap for people who decide to buy diamonds from a dealer with an unknown reputation, guided solely by the extremely attractive price of stone. There are no sales and promotions in the diamond trade.

As with any investment, attention should also be paid to its purpose. Will the purchase of an investment diamond and subsequent (in a few years perspective) realization of profit will be assigned e. g. to to repay the remaining debt related to the mortgage credit? In this case, it is worthwhile to place the savings in one attractive stone.

Or maybe you want to pass on the jewel to your children? In such a case, one should think about investing in several (smaller) stones of similar other parameters. These are very individual issues, but it will help us to plan our diamond investment effectively.

So how do you invest in diamonds and not lose?

Specify the long-term horizon of the investment (e. g. 2,5,10 years) and its objective (e. g. 1,2,5,10 years). eighteenth birthday of a child, securing retirement age, etc.). A good investor already when he enters a financial instrument to multiply his capital knows exactly when to exit and make a profit.

Set out clearly what amount you can spend on a diamond investment. Don't forget to diversify your investment portfolio by investing savings in various financial instruments, not just diamonds.

Specify where you will sell your investment diamonds. Remember that this is an average liquid asset and you will spend some time selling it. Find a few alternative ways to foil your jewel. You can take advantage of the services of traders in the industry (primarily jewelers, but not only), put diamonds in the commission or for sale on your own, using the benefits of the Internet. It is also a good idea to liquidate the diamond in the dealer who sold it - reputable sellers leave this possibility open.

Specify a storage place for stone. Whether you decide to keep an extremely valuable investment diamond in your home, cellar or in a banking box, it will be your choice, the consequences of which are familiar to you. A bank box is a good solution, but it entails additional costs of renting it out at a bank. You should reduce your final return on investment by this value. Perhaps the reputable company through which you invest in diamonds offers the possibility of storing them.

Choose a suitable trader who has a good reputation and with him or her choose the parameters of the diamond or investment diamonds that are most appropriate for the purpose and time horizon of the investment. Don't forget to consult with independent advisors in the area of diamond investment and check the reliability of the information provided to you. Buy stone certified by an independent gemmological laboratory.  The use of "blood diamonds"from illegal slave labour. Your investment diamond will have an indisputable value, thanks to its parameters, which are clearly set out in the certificate, accepted in every country where diamond trading is already common.

Store your investment diamond and keep it in a safe place for the duration of your investment.

Monitor price increases of investment diamonds on the free market on an ongoing basis. Get information from validated and independent sources. The Bible of the current trading prices for diamonds is always Rapaport Diamond Report.


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