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Investing In Diamonds For The First Time: 5 Critical Mistakes To Avoid

Investing in diamonds is an exciting, high-stakes means of potentially making a lot of money, but since it's not traded by weight the way gold or silver is or by volume like oil, the learning curve is a little bit longer. Before you get started investing in these exquisite stones, consider the following common mistakes and how you might avoid them.

1. Equating High Price With High Value

A diamond isn't necessarily going to be a great investment, simply because it's high-priced. There are a number of qualities to look for, aside from price that, over time, will boost the value of your investment, such as carat, cut, and clarity. It's good to get to know the stones in a very up-close and personal manner so that you have some basis to form opinions on. Weigh the value of all of a diamond's attributes, followed by a rough calculation of how long you intend to hold the investment and who you intend to market the stone to in the future. This should give you a good general idea of what you might expect as a return for your investment.

Given that there is so much to learn about diamonds as even an amateur investor, your best course of action is to gain a good understanding of the rocks themselves, followed by the markets, including anticipated long-term growth based on the laws of supply and demand. For the most part, only a handful of companies own and operate the majority of mining and trading interests in the diamond industry, making following trends somewhat simplified. There are Exchange Traded Funds (ETAs) for the diamond market, but just as with other speculative investing, the risks may be high; however, if you've developed a taste for diamond investing and already have ETA experience, this type of trading might be a good fit for you.

2. Underestimating Hidden Costs

While buying diamonds seems like a simple cut-and-dry process, there are actually many different influences that will considerably raise the price for investors. When you look at the price of a diamond, bear in mind the following factors that will likely inflate your initial costs:

  • Taxes: Whatever percentage in taxes you're charged, you'll need to add to the selling side your investment, in order to recover this cost.
  • Mark-ups: Depending on who you buy your diamond(s) from, the mark-up could etch away at your eventual profits; for this reason, it's better to avoid retailers, who tend to have the highest mark-up.
  • Storage: Where are you going to keep your gems while you're waiting for them to increase in value?
  • Insurance: If, for example, you don't sell your diamond(s) for a few years, how much is it going to cost you to insure them for that period?

Once you're aware of these hidden costs, you can better anticipate the real potential for your investment. You can also research ways in which you might lower these costs, such as finding diamonds for sale from a reputable online dealer, who has much lower overhead.

3. Expecting An Immediate Return On Investment

If you're interested in seeing a quick return for your diamonds, you could be in for a disappointing surprise. While diamonds do increase in value from a historical perspective, it doesn't happen overnight. For example, a gem purchased a generation ago at market value for that particular time would now most likely be worth much more; however, you're not likely to have a quick turn-around sale on anything you invest in now. Although this may exclude some types of investors from the diamond market, those that see the benefits of long-term, steady growth, appreciate how precious gems add value to a family's portfolio and strengthen their financial position with a reliability unmatched by other types of investment.

4. Buying Without High Standards Of Certification

Especially when making a purchase online, you must take every precaution as an investor and this is particularly true when looking at diamonds for sale. Going with a highly-trusted source for diamonds and other gem certifications is the best way to protect yourself, so long as you are able to verify all aspects of a sale prior to making a financial commitment. The Gemological Institute of America, or GIA for short, is a name you will hear mentioned frequently as you delve into diamonds; they have been a valued resource for both collectors and investors for many decades and issue reliable and verifiable reports on individual stones. No matter how promising any offer appears, if there's no formal certification involved, steer clear.

5. Focusing On Rarity Over Popularity

Sure, there are cases of rare diamonds selling for record-setting prices, but that's the exception, rather than the rule. When selecting one diamond over another for investment purposes, consider which one is likely to have a larger buyer base, increasing the likelihood of you being able to sell it. While there are times when a an unusual diamond is the better investment, for the most part, average investors need to base their decisions on a wider set of market circumstances. However, if a diamond you're interested in might be kept as a family heirloom, the more distinguished it is, the better.

Because diamonds hold their value, they can make for a great investment opportunity, but only if you know how to avoid the mistakes that can really cost you. Find a few reputable sources for your stones and with enough time your investment should really pay off. Reach out to a place like Rocky Mountain Gold & Silver Exchange for more information.