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The 3 Biggest Mistakes You Can Make When Buying Diamonds as an Investment - and How to Avoid Them

The 3 Biggest Mistakes You Can Make When Buying Diamonds as an Investment - and How to Avoid Them

Investing in diamonds is a tricky business. So tricky, in fact, that the head honchos at Quality Diamonds have a running disagreement about it.

Paul thinks the pitfalls are so great that potential diamond investors should just be turned away whereas Dave thinks informing investors about the pros and cons is the best way for them to avoid costly mistakes.

Fortunately, Dave’s in charge of the blog, so if you’re planning to invest in diamond jewellery or loose diamonds, read on…

Are diamonds a good investment?

On paper, diamonds make great investment sense. They have high intrinsic value, they’re always in demand and they last forever - plus, they’re small, portable and easy to store (unlike that priceless Ming vase you just had to have at auction). And, like most gems and precious metals, past performance shows that they will increase in value over time.

In reality, however, diamonds have very sketchy investment potential. One of the main reasons for this is that diamonds come in very inconvenient packages. Unlike gold - which is valued by weight because, let’s face it, one block of gold is pretty much the same as every other block of gold - diamonds can’t have a universal price per gram. When no two stones are exactly the same, 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 in the first place can be the trickiest part.

Despite this, many people are investing in diamonds - more so, now that traditional investment opportunities are failing to deliver the goods. Low interest rates and failing markets make investing in diamonds look very appealing. But how do you go about buying a diamond for investment, and how can you be sure of making a good return?

The truth is, at Quality Diamonds, we’d never encourage anyone to buy a diamond as an investment without full awareness of the risks and potential pitfalls. With that in mind, we've identified three of the most common mistakes people make when they invest in diamonds.

1. Paying too much

When investing in anything, the mantra ‘Buy low, Sell high’ will serve you well. When it comes to diamonds, however, ‘buying low’ is harder than it looks.

First, there’s tax. Unless you’re buying from a non-VAT area or through a VAT registered company, you’re going to instantly lose 20% of your investment. That means your diamond will need to grow in value by 20% for you to merely break even.

Second, 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. We can’t tell you how many stories we've heard about people trying to sell their ‘investment’ diamonds back to the trade - only to realize they were completely stung on the original purchase price. On the bright side, on-line retailers have transformed the market so if you buy from a reputable jeweller working on extremely low margins such as (cough, cough) Quality Diamonds, you can get a stunning diamond for close to wholesale prices.

Third, there are the hidden costs - such as the price of the setting. As cool as it would be to have a pouch of loose diamonds locked in a safe (perhaps concealed behind an ornate painting) 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. And what about insurance? If your diamond jewellery is valuable enough to be an investment it should probably be insured - but that’s another expense you’ll need to recoup when you sell.

2. Expecting too much

Investing in diamonds is possibly the worst get-rich-quick scheme in the world. Case in point: you never saw Del Boy buy five cases of diamonds to sell down the The Nag’s Head for a quick profit. Diamonds take time to increase in value, yet many diamond investors are disappointed when they don’t see short-term results.

Diamonds 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 - just very, 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.

This means when you invest in diamonds, your money is going to be locked up for a while (albeit in a very lovely sparkly package) so it’s important to be absolutely sure that you a) want to invest it in this way, and b) can afford to. 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 (see ‘Paying too much’ above).

At the very least, buy something you love. That way you can enjoy it while you've got it and you won’t be disappointed if it doesn't earn you as much in the long-run as you hoped.

3. Buying the wrong sort of diamond

The final hurdle when buying a diamond as an investment - and the one where most buyers fall - is knowing 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 - especially if it’s certified by one of the most highly respected labs (GIA and AGS are best). 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 (about three quarters of all diamonds sold are round) 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 - that means a diamond 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 (those of bulging wallets and gold-plated mansions) and will be harder to sell on. You should aim instead to buy a high quality diamond of mass market appeal - again, this will be more desirable to both trade buyers and private individuals.

Avoiding the pitfalls

You might now be thinking that it’s not worth investing in diamonds - and if you want to buy diamonds solely as an investment you’d be right. You’d be better off investing in almost anything else (panda videos on YouTube are a good bet). 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. Just be sure to follow the Diamond Rules (they’re so much sparklier than golden ones):

  • Buy at the lowest price you can, without VAT if possible 
  • Buy a high quality certified diamond in a popular shape 
  • Think about when you will want to sell - and how 
  • Buy something you love
  • Get advice from an expert