Diamonds Offer Unique Allure, Challenges to Investors

“Big girls need big diamonds,” Elizabeth Taylor once said. How about big investors?

On the surface, diamonds are alluring, thanks in part to savvy marketing that for decades has inextricably linked diamonds to romance. CNBC cites some dazzling figures from Martin Rapaport’s 2011 “Diamond Price Statistics Annual Report,” which finds that every $1,000 spent on a 5-carat diamond 10 years ago would have retrned $1,645 last year. This decade-long diamond investment outpaced returns in the yen, euro, and Nasdaq or Dow Jones indices.

The diamond market can challenge the most seasoned investors. Unlike precious metals such as gold and silver, average investors do not have a clear access to the diamond market. There are no futures or ETFs for diamonds, and the most respected sources for diamond prices are subscription-based, CNBC notes.

The market is basically stable, according to Rapaport’s January report. U.S. jewelry retailers expressed satisfaction with their holiday season sales, which were about in line with the previous year. While they intend to buy during the year, the report finds, “retailer were content to wait through January, and the first quarter, before replenishing inventory in a meaningful way.”

Far East retailers, too, have avoided making significant purchases to replenish their diamond inventories due to continued global economic uncertainties.

As with any investment, knowledge goes a long way toward successful investing, and there is much to learn about diamonds, beginning with the four Cs: cut (how its been shaped, its faceting pattern, and its surface finish); color (the rarest and most valuable are those that are naturally colored as opposed to being white or colorless), clarity; and carat (the weight of the stone). Each of these impacts a diamond’s value.

One of diamond’s biggest plusses is that unlike cumbersome, heavy gold bars, they are easy to carry, Like precious metals, they are valued as a hedge against inflation and stock market volatility.

But diamonds, the quintessential luxury item, are a rich person’s game.

Rapaport offered CNBC offered some priceless tips for prospective diamond investors. Among them:

∙Only invest in polished, rather than uncut diamonds that have been examined and certified by the Gemalogical Institute of America or International Gemological Institute

∙Get an opinion on a diamond from an appraiser who is a member of the National Association of Appraisers.

∙Save money on insurance. Lock your diamonds in a safe (haven’t we learned anything from heist movies?)