Although people’s obsession with gold goes back hundreds or even thousands of years, diamonds are a relatively new one. Like any other gem stone, diamonds are valuable because they are rare and in high demand. Without the demand though, they would be worthless. So why is it that most American males must enter the prime of their lives spending thousands of dollars on a tiny piece of carbon?
Don’t Call a Diamond Ring an Investment
At a time in most people’s lives when they should be maxing out their retirement contributions or saving for a house, many feel forced to trade all that money for a diamond ring. And it’s hard to go against societal pressures on this one since nearly every person on the planet has come to expect a ring as part of the engagement process. So what’s a person to do?
There’s a common myth floating around out there that a diamond ring is some type of investment. In the late 1800’s diamonds used to be pretty rare but with the discovery of substantial diamond sources in the second half of the 20th century, diamonds became more and more abundant.
The only reason the price has remained so high is that DeBeers has steadily purchased all diamond mines across the globe in order to control prices. That monopoly ended in 2001 but we’re still left with the aftermath.
Engagement Rings Are a Depreciating Asset
Like a car, a diamond is a depreciating asset since it loses a large portion of its value the second you buy it. Think about gold and silver. The market for them is very liquid and fungible since you can store coins, sell them at any time or even trade them later on. During that time frame they might even appreciate and provide a hedge against inflation. That’s not the case with diamonds though since the resale market is nearly illiquid.
Have You Ever Tried to Sell a Diamond?
Since there’s generally a 100% to 200% markup on the retail price of a diamond, most stores won’t even buy back diamonds from consumers for two reasons. The first is that since most retailers receive their diamonds from wholesalers they don’t need to pay for them until they’re sold. So there’s no point in risking capital on customer’s diamonds that may never be re-sold.
The second reason is that retailers don’t want to have to make an insulting offer to diamond consumers since that would undermine the notion that a diamond is a good investment. One industry expertestimates thatthat a half-carat diamond ring, which might cost $2,000 at a retail jewelry store, could be sold back to a wholesaler for only $600.
What’s the Solution?
If you’re a young couple in love, the one thing you need to know about diamonds is that the price is so high because companies like De Beers set those high prices. There’s no point in telling yourself that diamonds are an investment, but if you can find a wife that shares your disdain for diamonds, you’re in luck. Sometimes, though, you just have to put aside the logical reasons why you shouldn’t buy a diamond ring and do it just to make your wife happy.
Bottom Line
During the process for planning your wedding, it’s inevitable that you’ll need to consider your financial situation for both the present and future. Being frugal isn’t something that people will particularly want to be during such a special time as their wedding and engagement, but doing so could pay huge dividends down the road. If you and your spouse are looking to buy a home, a car or take an extravagant honeymoon following your marriage, you may want to think twice about what you spend on the engagement ring.
Financial Planning Tips
- Planning your finances for a future with your spouse can be overwhelming. A financial advisor can help with this, though. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Having a stringent budget can play a huge role and how successful you and your spouse are with your finances in the future. Try using SmartAsset’s budget calculator to get a plan started.
Photo credit: ©iStock.com/Elisaveta Ivanova, ©iStock.com/Oat_Phawat,©iStock.com/fufupix
FAQs
If you are buying diamonds at retail prices there is a markup to cover overhead expenses and retailer profit margins. This will reduce your potential for making a profit as an investment. It can also be harder to find a buyer willing to pay the asking price you want.
Why is diamond not a good investment? ›
More importantly, are these stones a good investment? Most industry experts respond with a resolute 'no' to the second question. Diamond's price is not standardised, it's non-fungible and, even if you do find a diamond in the rough (pricewise), it lacks a healthy secondary market that makes it hard to sell.
Is buying a diamond ring a good investment? ›
Diamond jewelry is beautiful, special, and something that will last a lifetime— but it's also a good investment. Diamond jewelry, like many other physical commodities, tends to increase in price over time, regardless the state of the economy.
Why do diamond rings have no resale value? ›
One factor is the retail mark-up. Jewelry retailers, like those in most other industries, buy products at wholesale and mark them up – some a lot more than others. Unfortunately, this means that the intrinsic worth of the diamond, and therefore the resale value, will be much lower than what it was purchased for.
Is it worth investing in an engagement ring? ›
They're not known to be great investments. They're often chosen with much emotion and the resale market can be tough. Of course, most people see an engagement thing as a “forever” purchase. They don't think about the resale value, but they should.
Why shouldn't we buy diamonds? ›
Diamond mining takes a major toll on our natural resources. And it's not just land! Mined diamonds produce more than 125 pounds of carbon for every single carat, whereas lab created diamonds produce just under 10 pounds.
What is a downside to diamonds? ›
Con: They can have imperfections
Each factor is rated on a scale. The purest and most perfect diamonds will be far more expensive than those with inclusions and impure colour. However, a good jeweller will know how to make a lower-quality diamond look its best and will set it in the appropriate way.
How much of your salary should you spend on a diamond ring? ›
It's known as the "three months' salary" rule, and it implies that a buyer should put three months of their salary toward a sparkler for their future spouse. For context, The Knot's 2023 Jewelry and Engagement study found that the average cost of an engagement ring in the US is $5,500.
Have diamonds gone up in value in 20 years? ›
Yes, the average diamond price has increased from 1960 to today. However, there's also been cumulative inflation of more than 700% over the same time period, meaning that the true appreciation in value of a diamond is very small.
Do diamonds hold value better than gold? ›
From a purely monetary standpoint, diamonds are worth more than gold. However, gold is rarer than diamonds and is generally considered a safer investment.
The average price of a 1 carat diamond is currently $4,023 (see price chart below). 1 carat diamonds can cost anywhere from $1,341 - $9,387 depending on the diamond's shape, color, clarity, and other factors.
Are diamond rings becoming less popular? ›
Diamond demand across the board has weakened after the pandemic, as consumers splash out again on travel and experiences, while economic headwinds eat into luxury spending.
Why are diamonds so hard to sell? ›
Diamonds can only be sold with a certificate proving their origin, carat weight, cut, clarity, colour, and form. Certificates like this are crucial to the resale price of any diamond gem.
Is $10,000 too much for an engagement ring? ›
How much should you spend on an engagement ring? Most people believe you should spend at least two months' salary on your engagement ring. If, for example, you are making $60,000 per year, you should spend $10,000 on the engagement ring.
What is the rule for buying an engagement ring? ›
To put that number into perspective, the three-month rule means that someone making $50,000 per year ought to spend $12,500 on the engagement ring. If a budget of three months' income seems like too big of a stretch for your lifestyle, you've got plenty of company.
Are diamonds a good investment in 2024? ›
What is the projected growth rate for the diamond investment market in 2024? The diamond investment market in 2024 is expected to experience a growth from USD 97.57 billion to an increased value, signaling a healthy market for potential investors.
Why diamond is not good for everyone? ›
If your zodiac sign is Aries, Pisces or Scorpio, you should not wear the diamond because according to astrology, diamonds can bring disharmony to your life. Diamond is the gemstone for those who are born under Virgo and Libra as it bestows good luck and prosperity.
Why are diamonds not an asset? ›
The reason they were never thought of as an asset class is because of their non-fungible nature, which makes diamonds impossible to “standardize,” and that is where recent innovation in the U.S. capital markets comes in.
What are the negatives of the diamond industry? ›
Mineral resource exploitation causes irreversible damage to the natural environment shown through negative impacts on water resources, air quality, wildlife, soil quality, and climate change consideration. Mining affects water quality and availability of water resources within the project area.
Why are lab diamonds a poor investment? ›
Unlike natural diamonds which holds value over time, laboratory-grown diamonds are industrial products that are factory produced in matters of weeks. Since they are not rare and easily mass produced, there is NO secondary market for them.
