As the well-worn saying goes ‘diamonds are a girl’s best friend’. But if you don’t handle them, and all that goes with them, with extreme care, they can turn into a girl’s, and your, worst enemy especially if you treat them as an investment.

Diamonds often appear to make great investment sense. They are always in demand and they last forever; they are small, portable and easy to store, and, like most gems and precious metals, past performance shows that they will increase in value over time.

But in truth, diamonds have very sketchy investment potential. One of the main reasons is simply because of what they are. Unlike gold, which is valued by weight, diamonds can’t have a universal price per gram. No two stones are the same, so every diamond has to be valued on its individual merits and, most of the time, that valuation is going to be somewhat subjective, which means choosing which diamond to buy can be very tricky.

Even so, many people continue to invest in diamonds, probably due to the terrible interest rates bing offered on the likes of ISAs and other investment accounts. But it’s a fact that there are pitfalls in diamond investment.

The mantra ‘buy low, sell high’ will serve you well with most goods, ‘buying low’ for diamonds is harder than it looks. For example, unless you’re buying from a non-VAT area or through a VAT registered company, you’re going to instantly lose 20 per cent of your investment. That means your diamond will need to grow in value by 20 per cent for you to merely break even.

Then there’s the retailer mark-up. This can vary from store to store so it’s crucial to shop around and make sure that you’re buying at the most competitive price. Many get stung on the original purchase price, although some on-line retailers have transformed the market so if you buy from a reputable jeweller working on extremely low margins, you can get a stunning diamond for close to wholesale prices.

There are also the hidden costs, like the price of the setting. Most people want to enjoy their diamonds, which means having them mounted in a setting. Yet when it’s time to sell, the setting will most likely only be worth scrap metal prices.

Investing in diamonds is possibly the worst get-rich-quick scheme in the world. They are a commodity and like any commodity, their value can go down as well as up. On the whole, based on past performance, they go up, but very slowly. It’s virtually impossible to make a profit in the short term so it’s not just realistic to buy a diamond and expect to sell it for a profit after five years.

So when you invest in diamonds, your money is going to be locked up for a while, and if you need to sell early to get your money back you’re highly likely to get a lot less than you spent in the first place.

Finally, when buying a diamond as an investment it is essential you know which diamonds are worth investing in. Some diamonds are easier to resell and are more likely to fetch a better price so investing in one of these will obviously make your job a lot easier in the future.

The most important thing is to buy certified. This is true whenever you buy a diamond, whether it’s as an investment or as an engagement ring, for so many reasons. A certified diamond is far easier to resell than one that hasn’t been certified and will be more desirable. Keep the certificate in a safe place but separate to the diamond itself, just in case.

The shape of the diamond can also be a factor. Round brilliant is the most popular diamond shape so investing in a round brilliant diamond will give you access to a bigger resale market. If you’d rather not buy round, opt for one of the other popular shapes, such as the Princess cut.

Always buy the best quality, with an Excellent or Very Good cut grade as well as above average colour and clarity. However, don’t be fooled into thinking you have to buy the biggest, best quality diamond in the world. The opposite is actually true. An extremely high-spec diamond will only be of interest to a select few buyers and will be harder to sell on.

So is it really worth investing in diamonds? If you want to buy them solely as an investment, then probably not. You’d be better off investing in almost anything else. But if you happen to want a nice piece of diamond jewellery and you’d quite like to buy something that will increase in value over the long-term then, by all means, buy diamonds. But be warned!

Colin Clarke
Author: Colin Clarke