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Retirement Planning 101: Should Diamonds Be in Your Portfolio?

Jul 26, 2018

Are you headed into retirement and considering ways to strengthen your portfolio? Maybe you’re considering whether an otherwise unwanted diamond ring should be considered a piece of your financial future?

In this post, we’ll go over what should be included in any strong financial portfolio. We’ll also outline the pros and cons of having a diamond engagement ring in your portfolio.

 

What makes a good portfolio?

Diverse assets

Ideally, a good retirement portfolio should include a range of low-risk assets, with some medium to high-risk investments sprinkled in. Usually, this means a combination of…

  • Equities (or stocks)
  • Bonds
  • Cash
  • Exchange-traded funds, or ETFs
  • Alternative assets

Having a diverse portfolio is important primarily because it limits the risk of losing all your money. Since your retirement funds are extremely important for your financial future, you want to limit the possibility it will all disappear overnight.

When you diversify, you severely limit this possibility. For instance, even if the bond market crashes, other parts of your portfolio will retain value. While any large-scale economic peaks and valleys will be impossible to avoid, diversifying diminishes the negatives of the valleys and keep you exposed to larger scale economic upward trends.

 

Alternative assets

Alternative assets are non-traditional assets that allow for growth or hedging (or a sort of insurance) in your portfolio. Since they are not “traditional,” there is often a lot of opportunity for high-growth investments.

Some popular alternative assets include:

  • Real estate
  • Business-ownership
  • Hard metals
  • Commodities-related investments
  • Private equity funds

Alternative assets present a great opportunity for “pop,” or growth in your portfolio. While your bond may not make you rich, it is often alternative investments that create real wealth for individuals.

 

Quality over quantity

Just because it’s a good idea to diversify your portfolio does not mean it’s automatically a good idea to start adding lots of investments to your portfolio overnight. You should be comfortable with anything added to your portfolio and have trust that the investment will work out.

This does not mean that you shouldn’t add higher-risk assets to the mix. Any good portfolio will have some riskier assets – just make sure you’re comfortable with the risk and you believe in the bet you are making.

You may have gotten an incredible deal on a commercial property, but if it’s in a neighborhood you don’t think will ever actually get developed, is it really a good investment?

 

Pros and cons to diamond rings in your investment portfolio

 

Con: Diamond rings may not hold as much value as other investments

Much like cars, diamond rings experience some initial depreciation. This means once you walk away from the a jewelry store, the value of the asset immediately goes down– but may increase in the future.

Unlike gold and silver, the value of your second hand diamond is not directly correlated with the market price for diamonds. Second hand diamonds simply don’t have the same value.

Diamond rings are also crafted works of art, meaning some of the value is derived not just from the raw materials that make up the jewelry, but also the craft of creating the item.

 

Pro: Diamonds are still valuable

Diamonds are an inherently valuable asset. Why are they valuable?

  • They are rare: Simply put, there are not that many diamonds in the world
  • They are beautiful: Diamonds hold an undeniable beauty
  • They are used for a variety of reasons: While diamonds hold most value due to their timeless beauty and undeniable charm, they also are used for industrial purposes
  • Only a select few grade well: While all diamonds are rare, finding one that rates well in the 4Cs of diamonds (carat, color, clarity, cut) is particularly difficult.

 

Con: Commodities as alternative investments are good – but diamond rings aren’t primarily an investment

Commodities of any type make great alternative investments due to their ability to hedge against inflation in the US and global economy.

Commodities markets generally have an inverse response to currency shifts. This means that if the dollar weakens, the commodity markets will likely go up. This protects your portfolio in the event of a market crash or a collapse in the dollar.

Unfortunately, since diamond rings will rarely appreciate significantly in value, it shouldn’t be considered a true investment. A better investment if you would like to explore the commodities markets would be to invest in companies that mine or sell diamonds, invest in commodity assets through your financial advisor, or even buying a hard precious metal like gold.

 

Con: The future of diamond valuations is unclear

Due to their limited availability, commodities will always have a positive future. This is because as the global economy builds momentum and becomes wealthier, demand will only go up for materials that are fundamentally limited.

Unfortunately, with diamonds the future is not as promising as it once was and it is for metals like gold and platinum. While synthetic diamonds will never be able to replicate the beauty and one-of-a-kind nature of real diamonds in jewelry, they work just as good in industrial settings. This means the supply for diamonds is increasing in the industrial sector, almost certainly lowering the price of diamonds in general in the future even for jewelry grade diamonds.

While this price adjustment hasn’t taken full effect yet, as technology gets better for the production of synthetic diamonds, the price of real diamonds will also drop.

 

Are diamonds rings an important piece of your financial future?

While diamond rings can hold value and may hold a special meaning to you and your partner, they should never be considered a substantial asset in your portfolio. The combination of depreciation and the unlikeliness of diamonds increasing significantly in value means a diamond ring should probably not be a part of your financial portfolio.

A better option? If a diamond engagement ring no longer holds the sentimental value it once did, selling your diamond engagement ring and reinvesting the money into another investment is the best option.

 

Sell your ring at Samuelson’s Diamonds

At Samuelson’s Diamonds, we are diamond experts and will give you the best possible price for your unwanted diamond ring so you can reinvest the money in your future. We’ll always treat you and your jewelry with the respect you deserve.

If you have questions or would like to book a private consultation, contact us! We’d love to help you choose the perfect ring!

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