Feature Stories - March 2002

Wearable Wealth

Diamonds As An Investment

by Pam Benjamin

Diamonds may be a girl’s best friend, but they can also be an investment, if the person buying them knows what to look for, buys high-quality goods at a fair price and deals with a reputable jeweler. According to information on the New York Diamond Exchange Web site, "The variable qualities of diamonds are grouped into four major categories, commonly referred to as the Four C’s: carat, color, clarity and cut. It is possible for a diamond expert to classify a single stone into one of 2,000 separate categories." A brief explanation of the Four C’s is contained on the sidebar accompanying this article.

"In the ’70s and ’80s diamonds were considered such a good investment that people used them for currency," said Cliff Miller, COO of MJ Christensen Jewelers in Las Vegas. Although stocks and mutual funds may have become popular in the bull market the U.S. enjoyed until recently, stock certificates just don’t dazzle the eye like a 2-carat solitaire diamond. Hadar Diamonds, a worldwide supplier based in New York City, reported, "Since 1934, [diamond] prices have increased more than the rate of inflation, thereby protecting the real value of capital. In recent years, diamond prices increased during a benign inflationary period, thereby offering solid capital protection in addition to capital growth." As the most concentrated form of wealth, diamonds are portable and private. "Unlike other investments," the Hadar Web site pointed out, "a diamond investor has 100 percent direct ownership of a portable tangible asset of proven value. Diamonds require no ongoing management or upkeep, nor do they draw property taxes or require liability insurance. Unlike commodities and other investments, diamonds are insulated from the daily fluctuations of the markets and are not as likely to reflect sharp price changes. Because the international demand for collectible diamonds greatly exceeds the supply, they are easily liquidated anywhere in the world."

Nearly the entire world trade in rough stones is controlled by one organization, DeBeers Consolidated Mines, a legal cartel formed in 1934. DeBeers sells diamond rough and maintains global prices by adjusting the supply of diamonds through its Central Selling Organization (CSO). Through its long-standing control, it has maintained a stable and orderly market. Miller explained, "If there is any weakness in worldwide demand, CSO will pull the distribution to decrease the supply. For example, if a 2-carat stone becomes popular, CSO may consider slowing the distribution to increase the demand." This is one method of ensuring the stability of the worldwide market.

Camille Lewis, owner of Richards Jewelers in Reno, advises her clients to safeguard their diamond purchases by selecting only stones certified by the Gemological Institute of America (GIA). GIA, a non-profit laboratory that verifies the color, grade and depth of a stone, is renowned for its impartial service as the world’s foremost authority in gemology. Miller also suggests clients buy diamonds certified from an independent lab, such as IGI (International Gemological Institute) or UGS (Universal Gemological Service). Modern technology has provided another safeguard to protect an investment-quality diamond. "Using today’s technology, the diamond’s girdle can be laser-inscribed with a serial number," said Miller. "Inscribing a diamond safeguards the consumer against it being switched during service, and it can be positively identified if it is ever stolen."

Another way to protect your assets is to purchase diamonds from a reputable jeweler. M.J. Christensen, which has been in business since 1939, is a member of the AGS, the American Gem Society. Less than 5 percent of jewelers are recognized by this prestigious association. The AGS was established in 1934 by a select group of independent jewelers, along with Robert M. Shipley, founder of GIA. It was their vision to create an association dedicated to setting and maintaining the highest possible standards of business ethics and professionalism in the jewelry industry.

Jewelers may also offer an upgrade guarantee, which allows the purchaser to "trade in" a diamond for another one of equal or greater value. According to Miller, M.J. Christensen allows 100 percent of an item’s purchase price to be applied toward a new diamond. However, he cautions people to carefully examine a jeweler’s upgrade policy before making a purchase. For example, in order to get full value for a $1,000 diamond, the client may have to trade it in for one costing $5,000 or more. As always, reading the fine print will pay off in the long run.

Although most jewelry is designed to be worn and enjoyed, certain styles can become valuable collector’s items and increase their market value. Fred Leighton Rare Collectible Jewels, which has a store at Bellagio in Las Vegas, has a world-renowned reputation for its antique jewels. For example, one of its pieces, The Tudor Rose, is a brooch of Brazilian green diamonds set in silver and gold, created in 1850. Its lineage runs from the French Crown Jewels to Princess Mathilde Bonaparte and on to Mrs. Cornelius Vanderbilt. "Watches can become classics, just like autos, and the value is based on condition versus age," explained Miller. "A Rolex watch purchased new back in the mid 80s ran about $10,000 and is now valued at $14,000, whereas a brand new Rolex watch is now about $20,000." For the serious collector, M.J. Christensen is expanding its presence in Las Vegas with a new 5,100-square- foot building in northwest Las Vegas, which will have space to showcase 20 exclusive designers.

Diamonds and fine jewelry may be bought as an investment or as a hedge against uncertain economic or political conditions. Or they may be purchased as a symbol of everlasting love. Either way, they increase in value with the passing years.