All investments are subject to the economy and the investment market, as well as supply and demand. However, investment-grade diamonds rarely depreciate. Allocating a small percentage of your investment portfolio to physical diamonds provides greater global security than keeping cash on hand. As less diamonds are being mined, more diamond mines close, and no new mines expected to be started for a decade or more, the reduction in supply and increased demand indicates diamond values will grow further — and possibly faster.
Definition of Investment-Grade Diamonds
The world has an abundance of industrial grade diamonds. However, diamonds of investment and jewelry quality are rare. The best investment-grade diamonds are those polished to the highest standard, GIA Triple Excellent and are of the color, size and purity that are globally in demand for engagement rings, making them the most desirable and resalable. When compared to common diamonds, investment-grade diamonds cost slightly more as the quality of cut is more expensive to achieve, and because they are of the types in continual global demand. However, these are the diamonds that see higher appreciation in value over time.
Qualities of Investment-Grade Diamonds
The quality of diamonds is defined by the four C’s. Cut, Clarity, Color, and Carat weight. Diamonds considered investment-grade are those displaying higher ranges of cut, clarity and color than common diamonds. Liquidity (ease of sale) is also an important aspect of investment-grade diamonds. Diamonds possessing the color size and purity used globally in engagement rings make them the most desirable and liquid, as engagement diamonds represent 50% of global diamond transactions.
Each of the four C’s are important. However, a diamond’s cut influences its beauty and value the most. Often confused with shape, cut refers to the proportion and finish of a diamond. Diamonds are assessed to be Triple Excellent, Excellent, Very Good, Good, Fair or Poor. The higher fire and sparkle prized in investment-grade diamonds come from its higher specification cut.
Triple Excellent cut removes the most important variable enabling a diamonds value to be more easily assessed. Other cuts are either too shallow, which lets light leak out of the bottom, or too deep, which allows light to leak out of the sides. Investment-grade diamonds are cut to enable light to reflect out of the face of the diamond minimizing leakage and maximizing sparkle.
A diamond’s color is graded between the letters D and Z. The letter D, the highest quality of color, indicates a diamond with zero color, and the letter Z indicates the highest presence of color. While a D color is the most expensive diamond, it’s not necessarily a good investment diamond, D colors are rare and expensive with a very limited market demand. The best qualities for investment purposes are those diamonds in greatest use and demand. These are the F through J.
Carat refers to the weight of a diamond. One carat weighs .20 grams. Larger diamonds, those with greater carat weight, are found less often than smaller diamonds, so a diamond’s value rises in proportion to its carat weight. Investment-grade diamonds generally weigh .50 carats or higher. The most liquid diamonds are those of engagement size, ranging from .5 to 2.0 carats.
Flaws gain higher visibility with a diamond’s absence of color, so clarity greatly affects the value of diamonds. This holds true even if the flaws are not visible to the naked eye. Investment-grade diamonds with maximum appreciation potential have clarity grades of F – Flawless, IF – Internally Flawless, WSI – Very, Very Slightly Included, VSI – Very Slightly Included and SI1 Slightly Included. The highest grades like higher colors are rarer and limited to somewhat stagnant market. The best color for investment diamonds are the types most common for engagement purposes which are liquid globally and have the biggest market. Those are VSI – SI1.
Round cut, brilliant white diamonds are generally accepted to have the greatest potential for appreciation. There are some exceptions.
Holding a paper certificate of a third-party diamond assessment greatly increases its potential for value appreciation. The certificate provides physical proof that the diamond has been appraised by a reputable and objective laboratory. The laboratories of the Gemological Institute of America (GIA) are the most highly recognized certification organization. In addition to verifying and validating the qualities that determine a diamond’s value, the certificate by detailing blemishes and inclusions, can also help identify a specific diamond in the event of loss or theft.
Assess a Diamond Separated from Jewelry
Investment-grade diamonds are purchased as loose gems at wholesale prices. The market for diamonds are professional diamond buyers who pay only trade prices. Therefore, investment-grade diamonds should be purchased at trade prices or the investment suffers an immediate loss upon purchase. Diamonds once set in jewelry carry a large premium for design and branding negating the benefit of buying for investment. This can be 60% higher than the diamond value. If you would like to set your investment diamond in jewelry, first buy the diamond loose and have it set afterwards.