Diamonds are one of those unique investments that can be purchased in one currency and sold in another, providing a hedge against inflation that devalues the purchasing currency. Diamonds are portable, pocketable, and tangible investments. Could you slip a Picasso into your pocket? How about 1,000 shares of Facebook?
Unlike white diamonds, colored diamonds are a one out of 10,000 occurrence that depends on geological conditions that existed billions of years ago. Yes, diamonds are already rare, but colored diamonds are found in relatively few locations. For example, Rio Tinto’s Argyle Mine in Western Australia has been the only consistent source of pink diamonds – providing 90 percent of the world’s supply.
Colored diamonds are becoming harder to find and even harder to mine. Some of the longest producing mines are nearing the end of their profitable life. This means that even if there were hills of pink diamonds, at the levels of current technology it would not be profitable to extract them. Since these diamonds can sell for in excess of $1 million a carat for premium stones that means that it is more expensive to mine than it is profitable to sell.
Fancy color diamonds are seen as a stable asset class, and have been so for some time. Total appreciation between January 2005 and October 2015 was 347.2 percent for pinks, 183.3 percent for blues, and 52.2 percent for yellows. Granted values are being driven at the luxury end of the market, where stones of large size and rare color and clarity are snapped up with great publicity.
Industry leaders such as Petra, Lucara, and Rio Tinto recovered exceptional diamonds in 2015 that will shape the 2016 market and entice investors. The rough diamond price drop experienced this year did not extend to fancy colored diamonds, and these are still seen as a safe haven against the glut of white stones on the market.
As noted, colored diamonds are a stable asset class, and if you take into account the tactics of Joseph Lau, billionaire investor. He has a history of purchasing high-value stones for his daughters. These stones while outside the reach of most individual investors, are nonetheless part of a comprehensive wealth management scheme that doubtlessly includes estate planning. Stones passed as gifts or held in trust for minor children may be classed as gifts rather than as items of an estate, and taxed at a different rate, or if held as part of a living family trust, not taxed at all. A highly competent attorney, specializing in wills, trusts, and estates can help you plan your estate to preserve value, minimize tax hits, and circumvent the probate courts.
Whatever your reason for choosing to invest in colored diamonds, you owe it to yourself and your family to educate yourself in your chosen investment strategy. Alternative investments have less liquidity than traditional investments and can require a longer outlook than stocks, bonds, and other instruments.
For more reading on alternative investments, click the links below:
- Treasure Assets: Alternative Investments for Business and Pleasure
- Alternative Investments: Investing Outside the Box
- Red Diamonds: An Alternative Investment Windfall