Skim this article: Diamonds are not a jewel of an investment.
For those who don’t want to read my boring explanation below of why diamonds and other goods are poor investments, watch this video instead…
Suffice it to say, when jewelers tell you a diamond ring is an investment, they are flat-out lying to your face. Not all will do this, I know several honest jewelers who will tell you the truth about their resale value if you ask. Sorry to burst bubbles, but people deserve to know this, especially since most of us aren’t super rich.
That depends. If it’s actually worth $400k, then it cost him a lot more than that (probably almost double). If he paid $400k, then it’s worth a lot less (probably a little more than half). It might resell a little better than some because its sheer size and cut are so unique that an estate auctioneer or jeweler could conceivably hope to get most of the wholesale markup. So he’s not only rich, he’s rich enough to throw away several hundred thousand dollars. Unless of course it’s a family heirloom, which is another possibility.
The ring is almost certainly insured against damage or theft (at least I hope it is), but it may not be insured against accidental loss. You can insure a ring for its wholesale value, but of course you’ll pay higher premiums. Buying separate ring insurance is only prudent if you spent tens (or hundreds) of thousands of dollars on the ring. Otherwise you’re better off seeing if your homeowner’s or renter’s insurance can include the value in your ring.
Banks are known to sometimes play games with paying on claims. But then no one should bank at a bank anyway (unless it’s USAA which behaves a lot more like a credit union) unless you like throwing away money. The caveat there is that the extremely cash wealthy often put most of their money into private banks but use incorporated banks for insurance and investment. The reasoning there is that most private banks are in tax shelter countries (hey, not saying its a good thing, just a financially sound decision on their part).
The Market*
Would you buy another good that was going to drop almost half its value the minute you left the store? That’s what you do when you buy a diamond (or in fact virtually any precious gemstone). That was a trick question, by the way. Almost anything other than property, certain cars and some artworks and antiques sought by collectors will depreciate precipitously. Before you blame the sellers, realize that that’s just how retail markets work. You pay the markup that allows the pipeline from the mining company to the commodities dealer to the manufacture to the wholesaler to the distributor to the retailer to make a 10% to 30% profit. In short, your paying for turning raw materials into finished goods, not for intrinsic value. This is one reason investors and investment brokers buy securities, property and certain rare valuables. They know most things are not appreciable investments. It’s also one reason why automated additive manufacturing, whether it be 3D printing in your home or a robotic factory owned by a company, are such disruptive technologies.
The Scam
But, diamonds are a special case of rip-off because they’re only mined and cut in significant quantities by a handful of cartels (De Beers being the biggest and most notorious) which artificially inflate the price above the normal mark-up percentages a healthy competitive market would allow. This is because they control the natural resource where the minerals are found (accessible diamond deposits) and hoard the vast surplus that if put on the market would lower the value. Synthetic diamonds made by chemical vapor deposition, although they’ve come a long way just in the last few years, are still hard enough to make that good ones can be more expensive than natural diamonds. Ultrasound cavitation is good for mass producing very small diamonds (this is where the diamond paste you’ll find on things like some sharpening stones often comes from). If CVD continues to get better and cheaper, it could disrupt the cartels, but it hasn’t gotten there yet.
The Alternative
My wife and I wear conventional gold wedding bands, nothing flashy. When I proposed to my wife, I had a jeweler make an engagement ring with her birth stone (still lousy resale value, but much lower base price) set in a sterling silver band. Much more sensible. Then, because I’m old-fashioned about some things, I made her an engagement gift, a Louis XVI style bed in walnut with bloodwood trim, engraved on the headboard using a large-bed CNC machine with the first poem she ever inspired me to write. Needless to say I presented the bed to her after she said yes so she wouldn’t feel undue pressure. Then we took an engagement vacation to Big Bend National Park and I made her her favorite meal for our picnic dinner. All in all, a much better use of time and money than a lousy diamond ring, IMHO.
ETA: *This is of course just basic market economics and most people here probably alreayd know it. I don’t mean to insult anyone’s intelligence. But it always surprises me how many people don’t understand why they can’t get back what they paid for things.
