Alternative Investments: All You Need To Know About Investing In Diamonds

Mar 8, 2018 | Alternative Investments, Diamond Investing

Arpège Diamonds is known and praised for our expertise in the world of colored diamonds.  As such, we share facts and investing tips related to them.  However over the past few months, we’ve seen a rise in questions about colorless diamonds. Driven by these questions, we decided to create a short guide on what to look for when investing in white diamonds.

While colored and colorless stones share many differences, the process of investing is in many ways the same. There are many common areas when looking at the importance of certain characteristics qualifying the diamond as worthy alternative investments.

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In this article we will be looking at:

  • The role rarity plays in value
  • What constitutes and investment grade diamond
  • The importance of Certification
  • Which is better: Short term of long term liquidation

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Rarity of the Diamond

When it comes to determining a worthwhile investment, we must always look at the fundamentals of economics. If we want our asset to appreciate over time, its demand will have to significantly outweigh its supply.

This is what we essentially mean by rarity of the stone. In terms of fancy colored diamonds, this is an integral aspect of their value. As we know, 0.01% of all diamonds unearthed are colored, and out of this 0.01% there are certain categories that are even rarer of the rare, constituting for astronomical prices. But what about colorless stones?

Being far more common than their colored counterparts, the rarity of white diamonds comes down to specific attributes that make up the stone. These are the grade of color (or lack thereof), the size of the stone, its clarity, and the brilliance which it illustrates when cut. Precisely, we are talking about the 4C’s.

 

What Constitutes an Investment Grade Diamond: The 4Cs

Just as in every diamond investment, the definitive factor for quality, and ultimately what makes a diamond “investment grade” is the combination of the 4C’s. But what is an ideal combination?

In order to be considered as investment grade, the stone will have to have a perfect combination of all Cs, and that is what constitutes a rare colorless diamond. Let’s quickly take a look at the ideal combination.

  • Color: The best grade for a colorless diamond lies between D and F. The farther left on the scale, the better. This basically means that the gem is crystal clear, with no inclusion of hues.
  • Clarity: The bare minimum of a top quality diamond here is the VVS2 category. The perfect stone must have no inclusions in order to be considered investment grade. Ideally you will want a diamond of F or even IF grading.
  • Carats: In terms of weight, you should aim for a minimum of 3 carats for clear diamonds. While still small, it will allow for a more clear representation of its beauty not only for you, but for further investors down the line who will potentially purchase from you when you decide to liquidate.
  • Cut: The cut is what is responsible for the brilliance of the diamond, this is what makes it sparkle in the light. Therefore, as an investor you should aim for a triple excellent (aka 3EX cut grade).

It goes without saying that the higher you choose within the combination of the 4 Cs, the greater the appreciation of your stone down the line. The investment game in the clear diamond category is all about comparing one stone to the next. If you have a diamond that combines all of the 4C’s, you will want to ensure that you pick the one with the highest grading in each category (and thus the highest rarity as well).

 

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gia clarity scale.png

 

Certification

In order to be sure (and to prove to future buyers) that your diamond is actually of the quality it is “advertised” certification is necessary. There are many credible institutions that provide trustworthy certification of stones, such as the American Gemological Society (AGS), the European Gemological Laboratory (EGL), the International Gemological Institute (IGI), and the Diamond High Council (HRD).

The most prestigious and strict however is the Gemological Institute of America (GIA).

Having said that, there are multiple other labs that provide certification, but much caution is advised when attempting to use their services. In order to avoid being victim of a scam, always take the time to thoroughly research the legitimacy of the lab. That is why we mainly recommend getting certification from the credited labs mentioned above.

Despite using slightly different grading criteria in certain areas, their legitimacy and reputation has been unquestioned over many many years.  

Long Vs. Short Term

Despite saying the largest, highest grade stones will appreciate the most, short term monitoring will show something different. This is what we stressed in the beginning, value and prices are highly determined by consumer demand.

With most consumers not being large investors, and preferring smaller diamonds for regular use, the short term will show much greater appreciation for smaller stones (smaller than 1 carat). While this is true, it is not indicative of the massive appreciation large colorless stones are capable of achieving.

In our article “Comparing Colored Diamonds to 4 Other Tangible Assets” we can see that over the span of a decade, larger colorless diamonds have been steadily appreciating second only to their colored counterparts. This is precisely why we stress that diamonds (regardless of color), are best seen as long term investments. They are meant to be worn, displayed, and cherished, and should only be liquidated after their value has appreciated to attractive levels.

Note: Appreciation for larger stones cannot be accurately predicted over 1-2 years. It takes a long time to see the evolution of appreciation, and investors should look at periods of a minimum of 5-10 years.

And now you know the fundamentals of investing in colorless diamonds. As you can see, the process of investing in clear and colored diamonds is almost completely identical, with perhaps the only main difference being in the way the stone’s color is graded.

Would you consider investing in colorless stones parallel to colored diamonds? Do you have any questions we didn’t answer? Let us know! And as always feel free to follow us on Twitter and like us on Facebook.

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