Diamonds vs Equities

by Sidsel Dalby
Investment diamonds and equities don’t have much in common. Both diamonds and equities have the potential to generate substantial investment returns, but apart from that, they have numerous differences that ought to be considered before choosing which investment is more appropriate for you.

Diamond Investment

When you invest in diamonds, you are buying a tangible asset in your physical possession. Colored diamonds’ scarcity and the widening gap between supply and demand are likely to continue driving prices higher, thus providing attractive investment returns. Fancy colour diamonds are among the most popular investment objects for private investors in 2022, outperforming both gold and stocks year to date.

Equities

When you buy equities, you invest in a company. Regardless of the business scope of the company, be it manufacturing, services or any other industry, your equity ownership get you a cut of the company’s profit (if there is profit) through dividend distributions.

Pros of Investing in Diamonds

Let’s explore in the areas where diamond investments have the upper hand, and in which cases stock investment might be the better choice:

  • When you invest in a diamond you own it; you can see it, feel it, and even wear it. Diamonds have aesthetic value; you can emphasize your social status by wearing your investment diamonds. Diamonds are also the best assets to have in case of life changes, or even emergencies. Diamonds can easily be carried on your person, wherever and whenever you may need to go – and they can be inherited by family members too. Equities, on the other hand, provide no tangible possession.
  • When purchasing a diamond, by using a reliable diamond expert and the stones you invest in have certificates from well-recognized laboratories (Gemological Institute of America – GIA is preferred), there should be no fear of being defrauded. Aside from buying and selling, stock price fluctuations are beyond your scope of control. You invest in a company and put your trust in the management and auditors to perform well and produce a profit.
  • Traditionally diamonds are a good inflation hedge. Diamonds typically provide protection against loss of purchasing power during phases of elevated inflation (such as the one the global economy is going through currently).
  • The diamond industry is very stable. Prices of diamonds don’t fluctuate substantially, so the investment risk is low. Historically, diamond prices steadily increase in value and are not very volatile. The risk is much higher with stocks. Returns from stocks can be massive but so can losses. Gains from stock shares depend solely on the performance of a company that you decided to invest in, making you completely dependent on their performance at a given time. 

Pros of Investing in Equities

  • Stocks could, theoretically, bring you enormous gains overnight. But big gains are accompanied by high risks as well. Many people buy and sell stocks for a living, and make good returns. The stock market is a bit like gambling, even if you make well informed decisions, there is an element of luck involved. Diamonds are not the right assets to use for speculation. Each diamond is unique and individual, so it is not possible to exchange one for another, thus making diamond transactions more complicated. When investing in diamonds, you should expect long term profits. If a diamond is sold under personal pressure it is unlikely to yield the full market value.
  • Stocks have dividends, meaning you receive a profit without having to sell the stock. Regardless of  what the dividend is, cash-dividend or dividend-reinvestment, stock shareholders receive part of a company’s profit or reinvest it. Diamonds don’t pay dividends. The profits on diamond investment are possible to obtain only after liquidating the investment.
  • Stocks are very liquid. It takes seconds to buy and sell stocks. The same stocks can be sold and rebought numerous times during one work day. Diamonds are much less liquid than stocks. Depending on the specific stone, the diamond can find a new owner very quickly or it might take some time to liquidate. Liquidating channels for diamonds can be complicated and inaccessible for many investors. At Dalby Diamonds we are offering a buy-back service. Read more about our services for diamond liquidation.
  • Stocks can be diversified; it’s very easy to spread equity risk by investing in indices or ETFs for example – thus obtaining exposure to a number of different companies in just one trade. Diamonds are typically hard to diversify. Each diamond is unique so they can’t be traded freely or swapped.

As you can see above, there is not definitive answer as to which investment is the better choice, diamonds or stocks. It all comes down to the individual investor’s needs and preferences. Diamonds and stocks shouldn’t compete for the same place on the pedestal. They would, however, complement each other nicely if both form part of an investment portfolio.

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