Risk of investing in diamonds

Purchasing diamonds for later resale, like any investment, carries a certain amount of risk. In the world of finance, there are no investments without a greater or lesser risk of losing some or all of invested capital. Even US treasury bonds and bank deposits are not completely risk-free, although the risk here is almost non-existent. Therefore, investing in diamonds also carries risks. Let’s check what risk exists on the gemstone market and how it can be reduced to a minimum.Purchasing diamonds for later resale, like any investment, carries a certain amount of risk. In the world of finance, there are no investments without a greater or lesser risk of losing some or all of invested capital. Even US treasury bonds and bank deposits are not completely risk-free, although the risk here is almost non-existent. Therefore, investing in diamonds also carries risks. Let’s check what risk exists on the gemstone market and how it can be reduced to a minimum.

Investing in gems is one of a kind. This is due to the specification of this asset. Every diamond is different, so the risks are also individual. Like investing in the arts, investing in diamonds can have a mix of investment and utility aspects. Works of art can be admired and diamond jewellery can be worn. Many people when buying a piece of diamond jewellery think that they will sell it for a profit if necessary. This is a huge mistake because diamond jewellery is mainly purchased for utility purposes. In the future, in many years, it may be possible to sell it at a profit, but we cannot be sure about it. From an investment point of view, it is better to buy a diamond, make jewellery from it and sell it at a profit. In such a system, you can talk about investing in diamonds. Buying finished diamond jewellery should not be considered an investment. Loose stones - yes. These diamonds are bought with the purpose of investment, portfolio diversification and the transfer of capital to future generations. 

You cannot expect a profit while forgetting your risks

The purpose of investing in diamonds is similar to investing in other assets. The investor, when investing their capital, count on an increase in value over time. When looking for a high potential profit, you must take into account the high risk. By choosing safe assets, such as the treasury bonds or bank deposits mentioned at the beginning, the profit will be lower, as will the risk. There is a simple rule here - the higher the potential profit, the higher the risk. There are no financial instruments that allow you to achieve high profits with little risk. Taking a historical perspective and analysing all types of diamonds, they can be included in the group of assets characterized by a profit that will exceed inflation in the long term. The rate of return on investment in the most unique stones can be much higher than inflation.

Diamonds are special

It can be assumed with high probability that no two diamonds are the same. Therefore, the investment potential and risk for each of them will be very individual. Colourless stones of high quality and high mass are more in demand in the market, therefore their prices are constantly increasing. Therefore, they can become a good investment. Coloured diamonds have even greater investment potential. The demand for them is growing very fast and the supply is relatively small. These types of stones have a low risk of losing your invested capital.

Source: Bain & Co, FCRF

Three types of diamond investment

The investment potential of low-quality, low-weight colourless diamonds is much lower, and the risk is much higher, compared to coloured diamonds with similar characteristics. The investment potential of diamonds and the associated risks should be considered in terms of three investment categories.

First of all: an investment in jewellery

The most natural way to invest in diamonds for most consumers is to buy diamond jewellery. Many people buy stones framed in jewellery for utility purposes - they want to wear it. By the way, they hope that it will be a good investment. Unfortunately, most of the time it is not. For example, trying to sell a diamond engagement ring quickly can turn out to be quite a shock. A seller who wants to buy it from you, can offer e.g. only 60% of the original price. This is understandable as the seller will want to buy the ring back below the price at which they can sell it again.


When buying diamond jewellery for investment purposes, you should only choose one with certified diamonds, the price of which is below the market price. Diamond jewellery, which can be a good investment, will not be found at chain jewellery stores, who include many fees in the price of the finished product, including marketing cost. Counting on a good investment, it is worth buying jewellery at manufacturer's prices.

When diamond jewellery is not an investment?

Diamond jewellery purchased at producer prices and made only of certified diamonds can be an investment. Any other will not be. A diamond in jewellery is expensive because it includes numerous costs: manufacturing, store margin, marketing expenses, and other fees. The same stone without jewellery will be much cheaper than the version with, for example, a ring or bracelet. The risk of losing capital in investments in diamond jewellery without certified diamonds purchased above manufacturer’s pricesis very high. Such jewellery, however, is not bought for investment purposes, but for utility purposes. After many years, it is possible to sell diamond jewellery at a profit. However, before this happens, a lot of time will pass and eventually the investor's grandchildren might be able to enjoy the profits.

Second: stone first, then jewellery

A better investment solution would be to reverse the situation and take over the role of a jewellery seller. The investor buys a stone and sets it in jewellery, which they then sell. The profit potential is the highest, but the risk also increases. An investor who is not a jewellery designer or manufacturer may not be aware of the prevailing trends and needs of a customer of the jewellery industry. Moreover, an investor who is not a jewellery dealer may not have a network of contacts that would allow them to sell his jewellery quickly. This involves a high risk that they will not find a buyer for his product and, ultimately, they will be left with the unsold jewellery and no profit. 

Diamonds are a good investment

The risk of not selling the product is high, so you should minimize it. A better solution will be to use the services of experts who will take over the responsibility for the production and sale of ready jewellery in exchange for participation in the profits. Thanks to this, the investor's risk will be greatly reduced. The potential return on investment is the highest, the risk can be strongly limited and the investment itself lasts an average of a year. In the diamond market, that's short. This variant seems to be the most advantageous for the investor.

Third: investing in loose stones

The third investment option is to buy loose diamonds. You can leave the stones unframed or put them in jewellery. The potential return on investment is high, provided that the purchased stones meet the appropriate conditions. Not every loose diamond will be a good investment. It will be easy to find those willing to buy rare stones. These include coloured diamonds, especially blue, red, and pink. The risk of investing in such stones is relatively low. Completely different than in the case of loose colourless diamonds of poor quality and low weight. These can turn out to be a very bad investment.

Diamonds as a long-term investment

Investing in diamonds is not a short-term investment. Of course, there may be situations in which the stone can be resold at a high profit within a few months, but such situations are rare. An investment in loose diamonds takes an average of 5-7 years. Please note that this market is not liquid. An investor can wait years before finding a buyer for their diamonds. The price of loose gemstones is steadily rising, but this does not mean that there will be a buyer ready to trade at any time. Diamonds are a specific asset, most investors treat them as collateral or as a form of increasing wealth. They do not buy them for later resale, but as an asset that can be sold in an extremely difficult situation. If no tragedy occurs, the diamonds will be passed on to the next generation as collateral.

Diamonds should be evaluated individually, because each stone is exceptional and unique in its own way. This is the most important reason why there is no single price index in the case of diamonds, as is the case, for example, in the gold market. The risk of losing some or all of your capital will be different for each stone. The prices of diamonds with different parameters will behave differently. Strong demand, with low supply generate coloured stones. It is estimated that only 0.01 - 0.1% are coloured diamonds out of the total annual diamond extraction. Of these rare stones, the rarest are blue, red, and pink. They are continuously popular among buyers, therefore investing in these colours involves the lowest risk. 

0,01 - 0,1% of the total annual diamond extraction are coloured diamonds

How to reduce the risk of investing in diamonds?

By investing in the right stones, you can significantly reduce the risk of investing in diamonds. The best choice will be diamonds that are increasingly in demand or for which the fashion is just trending. Diamonds with the most desirable colours, shapes or weight will be a good investment idea. So the question remains: Which are the desired diamonds?

Currently, the demand for coloured stones is growing. The most desirable colours are, for example, pink, orange, blue, and green. In the case of colourless, loose stones, the simplest answer is diamonds with high mass (e.g. 3, 5-10 carats and more), colour from J upwards, and VS clarity. In the option of investing in diamonds through jewellery production, the quality parameters do not have to be so high. We write more about them in another text on our blog: Are diamonds a good investment?

Lack of knowledge maximizes risk

The diamond market is evolving. For instance, there is a growing demand for different shapes than a decade ago. The popularization of coloured stones prompted investors and jewellery manufacturers to enter this part of the market. The strong entry of laboratory diamonds into the offer of jewellery stores also had an impact on the natural diamond market. The risk of investing in diamonds increases if these numerous changes are not followed. Without knowing the market, the consumer/investor may pay a high price for a stone or choose the wrong one. Continuous education in this field is essential.

Diamonds do not have a single price index because each is unique. It is difficult to assess the value of a stone without proper knowledge and experience. For this reason, it is very easy to overpay for a diamond. For example: why are high-clarity, D-J colour and highly fluorescent colourless diamonds 30-35% cheaper than the same stones but without fluorescence? Fluorescence can negatively affect the visual effects of colourless diamonds. Such diamonds are worth less. Not everyone knows about it, so there may be a situation where the investor overpays for the diamond. They will find out about it, unfortunately only at the moment when they want to sell it.

That is another proof of the importance of education and proper research. It is a good practice to compare stones, their parameters and prices and select the best offer. If the prices vary a lot and the stones seem identical - you need to compare them carefully. They will often differ in small details, such as fluorescence or the quality of the cut. It is these numerous parameters that affect the visual effects and ultimately the price of the stone.

Investing in diamonds and risk

An inadequate approach to investing in diamonds can increase their risk. The market is not liquid, but the prices of unique gemstones are rising steadily in the long term. For this reason, diamonds are a good form of capital investment. On the other hand, diamond jewellery without certified diamonds purchased from a chain jeweller above manufacturer’s pricesis not an investment. It can be an investment to buy loose stone and frame it in jewellery.

Diamonds are bought in order to invest capital, diversify possessed assets, secure one's future against unforeseen situations and transfer the property to future generations. Precious stones are most often purchased to accumulate and increase your capital. They are not an ideal asset for quick transactions. If the investors remember this, it will reduce the risk of this investment.

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