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Coloured Diamonds as an Asset Class?

Diamonds are one of those unique investments that can be purchased in one currency and sold in another, providing a hedge against inflation that devalues the purchasing currency. Like we’ve mentioned in previous articles, diamonds are tangible investments that are highly portable, easy to store, and of course wearable.

Getting More And More Rare – But Why?

While colourless diamonds are relatively easy to come across, coloured diamonds bring a whole new meaning to the word “rare”. More specifically for every 10,000 stones that are mined, only 1 will be a coloured diamond.

Coloured diamonds are becoming harder to find and even harder to mine. Some of the longest producing mines are nearing the end of their profitable life. A good example would be the famous Argyle Mine in Western Australia. This mine has been responsible for producing 90% of the world pink diamonds, with a quality unrivaled by any other globally.

However, its closure will not only affect the diamond production industry, it will also greatly impact the investment market, and possibly history as a whole.

The exhaustion of mines is not the only issue, many companies are also greatly limited by the current mining technology. This means that even if there were hills of pink diamonds, at the levels of current technology it would not be profitable to extract them.

A Safe Haven For Investors

Fancy colour diamonds are seen as a stable asset class, and have been so for some time. Total appreciation between January 2005 and October 2015 was 347.2% for pinks, 183.3% for blues, and 52.2 percent for yellows. Truly massive numbers if one takes into account that they were documented during a great financial crisis.

Furthermore, rough diamond prices dropped 2 years ago, but it did not extend to fancy coloured diamonds. (Thankfully, the latter have yet to experience any side effects even today.)

It is therefore safe to assume that fancy coloured stones are still seen as a safe haven within the industry.

A Lesson from a Seasoned Professional

As noted, coloured diamonds are a stable asset class, and if you take into account the tactics of Joseph Lau, billionaire investor, we can see why. In the last few years, this investor has had a history of purchasing high-value stones for his daughters.

These stones, while outside the reach of most individual investors, are nonetheless part of a comprehensive wealth management system that doubtlessly includes estate planning. Stones passed as gifts or held in trust for minor children may be classed as gifts rather than as items of an estate, and taxed at a different rate; or if held as part of a living family trust, may not be taxed at all. Consult your tax experts for specific insight here.

A highly competent attorney, specializing in wills, trusts, and estates can help you plan your estate to preserve value, minimize tax hits, and circumvent the probate courts.

The Takeaway

Whatever your reason for choosing to invest in coloured diamonds, you owe it to yourself and your family to educate yourself in your chosen investment strategy. Alternative investments have less liquidity than traditional investments and can require a longer outlook than stocks, bonds, and other instruments.

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