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How to Invest in Diamonds

Martin Rapaport|Founder, Rapaport Diamond Report
Friday, 24 Aug 2012 | 4:08 PM ET

1. Basic Requirements for Diamond Investment

Before you invest in diamonds make sure your investment meets the following minimum requirements: Price transparency, resale liquidity, market access, quality certification, and expert guidance.

An investment diamond needs to be purchased at a price that is reasonably close to the price that you can easily resell it. Buying at retail and reselling at wholesale is a bad idea, so you need to connect with an expert that can give you direct access to international dealer prices and markets.

You also have to confirm the quality of your investment diamond through independent third party grading and expert confirmation. It is important that you establish a relationship with a trustworthy investment diamond expert that can advise you about timing, ensure quality control and handle your transactions. (Read More: Tips to Finding the Perfect Diamond Ring.)

2. Invest in the Basics

While very large and expensive fancy color diamonds attract the attention of super-wealthy collectors, they are thinly traded and do not offer the price transparency or timely resale liquidity. Unless you are a billionaire investor and/or expert collector, stay away from spectacular diamonds. Their pricing is highly speculative and they are often difficult to resell.

International Diamond Industry Rock Star -- Martin Rapaport
In the secretive world of international dealers, Martin Rapaport is a rock star! He isn't a dealer, rather, he runs The Rapaport Price List, which is updated weekly and is the industry's go-to list for finding what a diamond is really worth.

The Rapaport Group recommends initial investments in Round, 1.01 to 1.49 carat, D-H color, IF-VS2 clarity, Excellent to Very Good Cut, Rapaport Specification 2+ diamonds. These diamonds trade on a daily basis, their prices are well known and they are easy to purchase and sell.

Depending on the investment budget, strategic objectives and diversification requirements, diamond investments can include additional sizes such as one-half caraters (0.51 to 0.69 carat) and two carat to five caraters.

While various investment portfolios using different size diamonds may be considered, we advise restricting investment to the well-defined and standardized round investment diamonds as described above. (Read More: Inside New York's Diamond District.)

3. Quality Certification

Investment diamonds should be graded by the Gemological Institute of America (GIA) and confirmed by your expert.

While the GIA is the primary grading authority, they grade all types of diamonds including substandard poor quality diamonds. Just because a diamond has a GIA grading report does not mean it is a good diamond. Have your expert ensure the diamond meets the Rapaport Specification 2+ quality standard in addition to having a GIA grading report.

4. Transactions Costs and Bid/Ask Spreads

Reasonable investment diamond transaction costs involving physical delivery of the diamonds can run in the 2 percent to 5 percent range depending on the size of the investment. The Rapaport Group is developing a new investment model that will provide investment diamond opportunities that do not require the physical delivery of the diamonds to investors at a one half percent (0.005) transaction cost.

Investors should investigate the bid/ask spread (the price difference between buying and selling prices for investment diamonds). When buying a diamond as an investment it’s a good idea to find out what you would get if you were selling the diamond on the same day.

5. Expert Advice and International Market Access

The most important decision a diamond investor must make is whom to trust. Diamonds and diamond markets are highly complex. (Read More: Arkansas State Park Luring Diamond Hunters.)

You should establish a relationship with a sophisticated investment diamond advisor knowledgeable in the nuance of diamond quality as well as international diamond pricing and markets. Your investment advisor should also have direct buy/sell trading access to the global diamond markets in order to ensure fair market value bid/ask pricing. ____________________________

Martin Rapaport is the founder of The Rapaport Group. The Rapaport Group provides a broad range of specific asking price information on its RAPNET Diamond Trading Network, which offers daily listings of more than 970,000 diamonds valued at over $6.1 billion. RAPNET is the largest diamond trading network in the world with 7,400 trade members in 80 countries. The Rapaport Group will be shortly introducing the RAPX diamond exchange with transparent online bid/ask prices and international clearing house services.

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