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10 Things You Need to Know About Treating Diamonds as Investments – and How to Spend Your Money Wisely

by Willyou.net * Mar 17, 2022

Key Takeaways

  • The average engagement ring spend remains at around the $6,000 mark as of 2022.
  • There’s no ‘right’ or ‘wrong’ figure to drop on an engagement ring. It’s never, ever a good idea to spend more than you can comfortably afford – and, once the ring is on your partner’s finger and you’re planning your wedding, that final total with no longer matter.
  • The old rule about spending two months’ salary on your engagement ring is totally outdated – a clever marketing trick that holds no real weight for shoppers today.
  • Even on a tighter budget, it’s perfectly possible to find a beautiful and impressive diamond – you just need to understand how to approach the various aspects of diamond quality, and which ones to care most about.
gold-diamond ring and jewelry - 10 Things You Need to Know About Treating Diamonds as Investments – and How to Spend Your Money Wisely

For most of us, making a quote-unquote ‘big spend’ naturally entails thinking ahead – way off, into some hypothetical future, when we may want to reap the rewards of our initial investment. Houses, cars, and even fine jewelry are all responsible for bringing about that money-mindedness, and beg the question, ‘How much of an investment into your future are you making?’

Diamonds are a big ticket item. In fact, they are probably one of the biggest ticket items most of us will ever bring home with us. But just how good of an ‘investment’ are they really? The answer depends on what sort of reward you’re looking to reap.

There are, however, a few things that any first-time ‘investor’ needs to be aware of. Diamonds aren’t the big, money-spinning venture they may seem like to an outside – at least, not unless you’re making some wise moves at the big auctions.

1. Diamonds are a finite resource

Natural diamonds are mined from kimberlite mines and alluvial deposits in a relatively short list of countries and regions around the world. Learning how diamonds are formed means really opening your eyes to the fact that these precious stones are limited and, one day, will have been depleted entirely.

Every natural diamond was formed over more than a billion years, and had to cover incredible distances just to be close enough to the surface for miners to reach them.

Sure, diamonds themselves aren’t exactly rare. It’s not like buyers have to search hard just to come across a diamond for sale. But, even still, they are not a resource that can be replaced. As natural reserves go down over the years and decades, it is almost inevitable that value will increase. This is, of course, a process that will be spread out over the long-term, but it is certainly on the cards for the industry. 

Over the years, a number of notable mines have closed. Geologists and mining companies like De Beers continue to ‘break new ground’ (literally, and figuratively) when it comes to unearthing natural deposits. Canada only became a target for commercial diamond mining as recently as the 1990s, and the diamond industries of countries like Sierra Leone are still considered to be heavily underutilized – although, of course, things are gradually changing.

2. But, right now, there is no shortage of gem-quality diamonds

Don’t be fooled into thinking that, because diamond is a finite, unrenewable resource, finding a stone to put in your engagement ring is going to have you trawling jewelry stores just to catch a glimpse of a single diamond for sale.

If that were the case, then the secondhand diamond market would be thriving. As of right now, however (and as we’ll look at in more detail below), the opposite is true, and the overwhelming majority of shoppers will target jewelry stores and other vendors selling new diamonds, rather than old diamonds.

3. Every diamond is unique…

Natural diamonds are, by definition, created solely by the forces of nature. While, from a distance, a handful of diamonds cut to the same size and shape may all appear identical, beneath the surface lie many, many unique characteristics that make it easily identifiable to a gemologist or jeweler with the right tools to hand.

Sure, they are cut and polished by human beings, but these processes also leave their own distinctive mark. They might be totally invisible to the naked eye, but that doesn’t erase the fact that they are there, and a part of the diamond’s unique appearance.

This is why there is no ‘set’ or predetermined value for diamonds of different carat weights. The price range for 1 carat diamonds alone can stretch from $2,500 to $20,000, simply because of the fact that there are many, many, many different factors used to determine a diamond’s value.

4. …But the strongest investments are the rarest

You’re pretty unlikely to find any strong investment potential in the kinds of diamonds most commonly used in engagement rings. We’re talking about diamonds of the usual carat weights, or the typical ranges for clarity and color. For instance, this is where the most profound difference between FL and eye clean diamonds is found. An FL diamond will catch a lot of interest from collectors, whereas an eye clean VS diamond is one of a much larger collection of stones that are readily available around the world.

The sorts of diamonds worth investing into are diamonds that most of us can’t even consider investing into. For instance, just recently, records were broken by Sotheby’s Cullinan Diamond, a rare fancy vivid blue Emerald cut weighing 15.5 carats and featuring a clarity grade of IF. The stone sold at auction for $48 million.

Stories like these aren’t unfamiliar to us, but they are relatively rare occurrences compared with the sheer number of diamonds mined, cut, bought and sold around the world each year. Fancy colored stones – particularly those of red and pink – and Flawless or Internally Flawless diamonds with particularly high carat weights are the ones that make headlines for their auction value. This is a far cry from the diamonds most of us are considering.

5. They are not a commodity like gold

Gold is a commodity with a universally held value. And, while that value is in a continuous state of flux, it means that, theoretically, an ounce of gold will always cost you the exact same amount as it would anywhere else in the world.

Diamond is very different. While the Rappaport Diamond Report is updated once a week, and advises a ‘price per carat’ for diamond, that price changes alongside carat weight. In other words, the price per carat of 1.5 carat diamonds is different to the price per carat of 2, 3, or 5 carat diamonds. 

What’s more, price per carat is totally dependent on the color and clarity of the diamond, too. This is why you could hypothetically look at two 1 carat Round Brilliant diamonds side-by-side, one with a value of just over $2,000 and the other with a value of more than $20,000. If one features exemplary quality, and the other features severe inclusions and a poor color, their prices per carat will be totally different.

This is a far cry from a commodity like gold, which simply has a value per ounce that is recognized around the globe. It’s also why making a strong choice over which diamond to purchase for your engagement ring takes time and effort, rather than being a process of choosing a carat weight that fits your budget.

You can read more about diamond prices in this guide.

6. But they are great for concentrating wealth

A 1 carat diamond is the equivalent of 0.2 grams but, as we mentioned, a particularly high quality stone of that weight could have a value of around $20,000. This is an incredibly concentrated form of wealth, making it an attractive opportunity for someone who wants to diversify their investment portfolio, without losing that opportunity for easy liquidation.

7. Natural diamonds have far more long-term value than lab grown diamonds

Remember how we said that natural diamonds are a finite, exhaustible resource? The opposite holds true for lab grown diamonds. We’ve written in the past about how the fact that lab grown diamonds are a sustainable alternative – a phrase which, here, simply means we can continue to make more and more of them indefinitely – makes it possible for sellers to put across a tone of eco-friendliness and greenness for the industry, but that, ultimately, the argument is severely flawed. If you’re interested, you can read more here.

There are a lot of downsides to choosing lab grown diamonds over natural diamonds, and many shoppers feel reluctant to turn their backs on the rich history and narrative behind natural stones. The cold sterility of a lab, churning out their diamonds as fast as possible, is a poor substitute for symbolism that has captured hearts for generation after generation.

But that’s just one side of the coin, and plenty of people can overlook that detail in favor of a stronger investment. After all, lab grown diamonds are infamously cheaper than natural diamond – another supposed count in their favor.

The trouble is – and one of the many reasons we try to discourage readers from lab grown diamonds – is that they do not retain value in anywhere near the same way as natural diamonds. For starters, lab grown diamonds are a relatively new phenomenon; we can’t predict how they’ll be received by collectors and investors in the future.

What we can know, however, is that they will never be rare. Like cubic zirconia or moissanite, producers can make more and more of these stones whenever the demand comes about. They are the end product of an efficient production chain, rather than a natural force that took more than a billion years to bear fruit.

8. But wholesale value changes all the time

Remember how we mentioned that the Rappaport diamond report is published once a week? While the differences in per carat value for diamonds may generally only deviate a little on a week-by-week basis, it’s still the case that value is constantly adapting and changing.

This won’t have a big impact on the secondhand value of your diamond, but it will serve as a reminder of the complexities involved in trying to make any money as an investor in this industry. 

9. You won’t pay ‘wholesale value’ for your diamond in the first place

Vendors and jewelers buy their stock in much larger quantities than their customers. This is, as you know, a cornerstone of the commercial world – sellers buying in bulk for a lower price, then selling their wares onto customers in much, much smaller quantities. Even wholesale warehouse stores like Costco and Sam’s Club sell their products to customers in smaller quantities than they acquire, or there would be no business sense behind their existence.

Different stores and vendors take different approaches to pricing their diamonds, but it shouldn’t come as a surprise that their prices are not on-a-par with the wholesale market. Some vendors – like those operating in the NYC diamond districts – offer very competitive pricing, but this isn’t always the case, and your ability to sort a great deal from one that simply looks like a great deal will set the tone for your entire experience in one of these districts.

One thing all buyers need to be aware of are the risks that are inherent to investing in a diamond with a rock-bottom price.

10. The cheapest places to buy diamonds are rarely the most reliable

While the small, everyday purchases we make tend to be ideal for finding good deals, drumming down the price, and minimizing our financial outlay without sacrificing on quality, diamonds are a different ballgame entirely. When there is so much at stake, taking the shortcuts laid out for newcomers is a big risk, and something that we frequently urge our readers against.

Some of the most obvious ‘shortcuts’ that promises to save customers money are the online vendors. From dedicated, digital jewelers to online marketplaces filled with third-party sellers, it’s no secret at all that the internet is awash with ‘great’ looking deals on diamonds. Sure, some are diamond scams, but many of them aren’t – they’re just not ideal for anyone looking to spend their money wisely.

When they choose to go online, shoppers can save money on a diamond, but saving money means relinquishing the opportunity to really appraise that diamond before passing over a large, lump sum. In our experience, we can’t see the true benefit to saving a small amount on a diamond when shopping online means having nothing but a report and a photograph to go off.

Like we mentioned above, diamonds are totally unique objects. There’s a lot to consider before you can be sure about your investment, and you can’t do it all through a screen.

11. Value tends to dip immediately after purchase…

Again, this isn’t something that is unique to the diamond world. Plenty of investments lose value the moment they become ‘second hand’ and, unless you make use of any 30-day money-back guarantees from the original seller, you will find it tricky to even break even through the resale market. For classic cars, this starts to change after a few decades but, for diamonds, how long it takes for that value to ‘replenish’ itself depends on the diamond, its backstory, and the amount of time that passes.

Ownership is a major factor behind resale value. Elizabeth Taylor’s 33.19 carat Asscher cut ‘Krupp’ diamond, for instance, was last sold at auction for more than $8.8 million. While a lot of that value stems from the quality and size of the diamond, it’s fair to say that its history as a symbol of one of Hollywood’s most elite couples would have also represented a major contributing factor.

Jewelry owned by some of the world’s most notable style icons accumulate value at a tremendous rate. Their prominence in paparazzi shots or movie promotions make them an irresistible prospect for the world’s most prolific collectors, and not simply because celebrities can afford the highest quality diamonds.

It echoes the same enduring sentimentality we feel toward natural diamonds, and not toward lab grown diamonds. Collectors and first-time buyers alike are drawn to history and meaning, rather than appearance alone.

What this does mean, however, is that your diamond is very unlikely to gather value in the same way as a comparable diamond worn by one of the world’s big names.

12. …But quality is easily preserved

One big setback to investing money into, say, a classic car is that, to make the most money back on your investment as you can, you’re going to want to drive it as little as possible, store it somewhere away from damp, dirt, direct sunlight, and other hazards, and generally go to lengths to keep it in pristine condition. Sure, you’ll still get a good price for a classic car in suboptimal position, but nothing like the price you’d have found with a near perfect model.

Diamonds are very different. As the strongest natural substance out there – with a rating of 10 on the Mohs scale of hardness – they are incredibly resilient, durable, and safe to wear and enjoy. Yes, if you’re a serious, hard-nosed investor coming into possession of a world-famous piece, you’re probably going to want to store it away from the world in a triple-locked safe but, for the average buyer, knowing that wear and tear are unlikely to drag down the value of their diamond comes as a great relief.

Remember that diamonds are not totally impermeable to damage. They can be chipped or broken, so looking after them is still important. Nevertheless, you don’t need to fret over them. Estate pieces frequently fetch great prices at auction, even if they’ve already passed through multiple wearers.

13. Sentimental value tends to supersede financial value

Plenty of first-time diamond buyers, when preparing to make that big spend on their ring, can’t help but consider the bigger financial picture. When we spend $10,000 on anything, it’s guaranteed our mind will run off into some distant, hypothetical future and consider what sort of return we could get on it.

What’s important to keep in mind, however, is the fact that, unless you’re a dedicated investor of fine pieces – or an avid collector – it’s pretty unlikely you will want to cash-in that potential value in the future.

Why? Because, for the average buyer, a diamond is purchased as a symbol of love and commitment, and there’s a strong chance that the sentimental value of that diamond will ever go away entirely. Sure, you may reach a point in the future when you want to ‘trade up’, but there are ways of doing that without having to deal with the complexities of the secondhand diamond market…

14. Diamond upgrades are often the better option, and readily available

These days, a lot of jewelers offer their own diamond upgrade schemes. Through these, past customers (and, on occasion, new customers, although this isn’t quite so common) can return to the store and exchange their old diamond for a new one, only paying the difference in value between them. This is a great alternative to selling your diamond yourself, since you’re effectively getting the original purchase price – although, obviously, the one downside is you won’t actually wind up with any extra cash in your pocket.

For this reason, it’ll be pretty obvious to you that diamond upgrade isn’t the right choice if you’re simply looking to realize some sort of return on your original investment. But, if you’re in the market for a new piece of jewelry anyway, it’s an ideal alternative. Selling the diamond yourself in order to generate funds for a new piece won’t prove anywhere near as effective.

We’ve written a much more comprehensive guide to diamond upgrades already at WillYou.Net, and it’s certainly worth a read – even if you’re not convinced you’ll ever want to swap out your original diamond for something new.

15. Jewelers are the best places to sell old diamond jewelry, not the internet

Another factor that seriously complicates the investment potential for first-time or casual diamond buyers is the fact that the resale market is pretty complicated to navigate. People in the market for an engagement ring will almost always gravitate toward jewelers and established vendors, rather than individuals with secondhand pieces to sell. One of the big exceptions to this is, of course, in the case of designer, high-end pieces. In general, rings from jewelers like Tiffany & Co., Cartier and Van Cleef & Arpels will get a strong price, although it may take years before investors recoup their full investment, let alone make a profit.

If you do decide to sell your diamond, however, then your best port of call will be a reputable local jeweler – preferably, the same person who sold it to you, since you’ll already have that trust and rapport.

In the past, we’ve reviewed sites that attempt to make the process of selling an old diamond easier – and help sellers to feel they’re getting a fair price – but, for us, they fell short. As an outsider to the industry, you’re automatically at a disadvantage, simply because you’ll have to be able to trust that the price you’re being offered is a fair one, reflective of the state of the secondhand market.

These sites, which promise to put your diamond piece up for auctions accessible only to industry experts and professionals, don’t seem to offer any real substance to the process. As a seller, you’re still at the mercy of whatever price you are given, but with the added setback that you don’t know the buyer, or have that vital rapport.

How to Spend Your Money Wisely

Depending on the vendor in question, prices are not always reflective of good quality. In the past, we’ve reviewed a number of chain jewelers who tend to focus on selling diamonds that are, to put it bluntly, the bottom of the barrel in terms of quality. Affordable, pre-set rings featuring a vague clarity grade (phrases like ‘at least I1 clarity’, which promises very little), may seem like a good idea to someone with no prior knowledge in this area, but, in reality, they are a terrible waste of money.

Spending your money wisely means knowing how to avoid overpaying – something that, for various reasons, is all too easily done in the diamond world.

Know how not to overpay

For starters, you could overpay on a diamond that is not worth anywhere close to the price listed. This isn’t the same as paying for the margin bricks-and-mortars apply to their own diamonds – which, as we mentioned, is worth paying just for the added benefit of working alongside an expert – but happens when sellers attach a high premium to their products as a result of their name and reputation.

We found this to be the case at a lot of high-end jewelers. While we mentioned above that the luxury jewelry brands tend to fair better on the resale market, it’s still the case that, at the point of purchase, customers are overspending on their diamonds by thousands and thousands of dollars. If you’ve no guarantee you’ll want to sell in the future, this seems like a missed opportunity to find something a lot better for a lot less money elsewhere.

High prices aren’t just limited to the high-end. As we mentioned, we’ve encountered a number of chains selling low quality or uncertified diamonds at prices that don’t always reflect the quality of the product.

It’s very important that any shopper is aware of the fact that they will always overpay if the diamond they purchase is not accompanied by a GIA or AGS report, or of a high enough quality that it appears eye clean, bright, and free from color.

Know what makes a good diamond

A poorly cut diamond is never a good investment. These diamonds are not seen as attractive prospects on the resale market. While it is possible for someone to get a diamond recut, doing so means sacrificing a significant amount of carat weight – something that, as you can imagine, quickly starts to knock zeros off a diamond’s value.

The same goes for proportion and ratio. Don’t waste your money on a diamond with less-than-ideal proportions, even if the price looks good.

Diamonds with noticeable inclusions will also perform worse on the secondhand market – just as they perform worse in the jewelry stores. The same goes for diamonds with poor color, so stick within the Colorless – Near Colorless range.

Fluorescence is a complicated subject – and, in some ways, open to interpretation and personal preference – but it’s important that any buyer understands it before they spend their money.

Keep in mind, too, that some diamond shapes are more vulnerable to damage than others. Shapes with sharp corners, like the Princess, or fine points, like the Marquise, Pear, and Heart, can take on damage a lot easier than shapes like the Oval or Round Brilliant. There are ways of ensuring the more vulnerable parts of the cut are protected during wear, but, if you’re focused on the longevity of your diamond, it’s worth being aware of the risks.

Consult the experts

Every shopper is different. Their budget, style, priorities and concerns for the future are all unique to them, so there is only so much a single guide – no matter how comprehensive it is – can do for you, or for anyone else.

This brings us back to the importance of having an experienced and reliable jeweler by your side throughout the entire process of finding and buying a diamond. There is so much groundwork to cover if you’re truly interested in maximizing every cent of your budget, and avoiding any of the pitfalls laid out for first-time shoppers who don’t know the first thing about diamonds, or their value.

Jewelers are there for more than just handing over your ring at the end of the process. Many of them have worked in the industry for decades, or inherited knowledge through generations, and they know how to get the best for their customers. This is something you lost entirely when you go online, and another reason why we can’t imagine ever recommending the internet as a better place to find a diamond than real life.

Our Summary

Diamonds are incredibly valuable items, but using them as an opportunity for a long-term financial investment means that you’ll want to understand the market inside and out, and invest into a diamond that will be sure to continue generating interest among collectors and other potential buyers long into the future.

It’s a complex subject and, for the average buyer looking to invest in an engagement ring, needn’t be a top concern. Nevertheless, it’s another compelling argument in favor of working with a reputable professional, and ensuring that you know how to find a truly worthwhile diamond, rather than a waste of money.