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
As a seasoned financial expert with a deep understanding of investments and economic trends, I bring a wealth of knowledge to the table. My expertise is rooted in years of hands-on experience, research, and a keen interest in the dynamics of financial markets. I've closely followed the evolution of various investment assets, including precious metals and gemstones, making me well-equipped to shed light on the topic at hand.
Now, let's delve into the concepts presented in the article:
Diamonds as an Investment:
Rarity and Demand:
Diamonds, like other gemstones, derive their value from their rarity and high demand. The article correctly points out that the demand for diamonds is a crucial factor in determining their value. Unlike gold, which has been cherished for centuries, diamonds have gained prominence more recently.
Historical Context:
The article provides a historical context, highlighting the shift in the rarity of diamonds. While they were once considered rare in the late 1800s, the discovery of significant diamond sources in the latter half of the 20th century led to increased abundance. The De Beers monopoly, controlling diamond prices by acquiring global mines, is an essential historical factor that shaped the market.
Diamond Rings as a Depreciating Asset:
The author emphasizes that considering a diamond ring as an investment is a common myth. Similar to a car, a diamond is a depreciating asset, losing a substantial portion of its value upon purchase. The comparison with gold and silver, which have liquid and fungible markets, highlights the difference in investment characteristics.
Resale Market Challenges:
The article discusses the challenges of selling diamonds, citing a 100% to 200% markup on retail prices. The illiquidity of the resale market is attributed to the reluctance of retailers to buy back diamonds, given the risks and potential loss on resale.
Financial Planning Tips:
Frugality and Future Planning:
The article advises against succumbing to societal pressures and overspending on diamond rings, especially when individuals should be focusing on financial priorities like retirement contributions or saving for a home. It emphasizes the importance of frugality during significant life events like weddings.
Budgeting and Financial Advisors:
Financial planning, including budgeting for significant life events, is highlighted as a crucial aspect. The article recommends using tools like SmartAsset’s budget calculator and suggests seeking the assistance of a financial advisor to navigate future financial goals successfully.
In conclusion, the article provides valuable insights into the misconceptions surrounding diamond rings as investments and advocates for thoughtful financial planning, offering practical tips for couples navigating the complexities of wedding expenses and future financial goals.
