WHY YOUR DIAMOND ENGAGEMENT RING IS NOT AN INVESTMENT

‘How much will it cost to get what I want?’ – this is the question I am asked by almost all my engagement ring clients.

Very few people have bottomless pockets, so, whether your budget is £2,000 or £20,000 you want to make sure that you are getting value, and know what to expect for what you are paying.

Some of the messages out there about fine jewellery suggest that a diamond ring is a good financial investment. But is it REALLY?

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WHAT IS THE ‘VALUE’?

While your engagement ring is certainly an emotional investment in your future together, what it is NOT, is a financial investment. And it’s ‘value’ will depend on the purpose for which it is valued!

The idea that jewellery does not really have a fixed ‘value’ once you own it is counterintuitive to many people and is worth an explanation. The intrinsic value of the materials (the gold and diamonds etc) is only part of the cost, so it is good to understand how it all works before you commit yourself to that expense.

A FINANCIAL INVESTMENT?

First of all, a definition. Something is only a financial investment if you intend to realise the benefit sometime in the future, ie sell it. Under what circumstances do you think you might ‘realise’ the value in this ring which you are giving to the love of your life? Surely, this one is forever? Quite possibly to be handed down to the next generation - not a trinket you are going to sell in a few years time?

If you want a financial investment buy government bonds or gold bars, they at least have a clear market value at any given time.

THE ‘VALUE’ OF SECOND HAND JEWELLERY

But let’s just imagine that at some time in the future you did want to sell it. The market for second-hand jewellery is a little like the market for second-hand cars. Except that the market for second-hand cars is probably more transparent and better understood. A second-hand car of any given condition has a known utility value to its potential buyers. There is ‘Glass’s Guide’ for the trade, and many online tools for comparing the value of second hand cars. For a given age, mileage and condition they are more or less a known quantity. Not so second-hand jewellery, and specifically not second-hand diamond engagement rings.

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Unless it is a ‘vintage’ ring purchase, many people have a superstitious or at least emotional objection to buying an engagement ring which may be available because a proposal failed or an engagement or a marriage has broken down. Not only that, these days most people want something made especially for them so buying another person’s cast off ring just doesn’t cut it (for more on this see here).

If you had to sell a brand new car the minute you drove it off the forecourt, you might lose say 20 - 30 of the price you paid (VAT plus a bit). But if you try to re-sell an engagement ring immediately after you’d bought it, you will be lucky to realise 35-40 of the purchase price. If the main diamond is under 1.0ct it could ‘lose’ around 60 of its ‘value’. Why?

Well, a lot of the price of a new ring pays for elements other than precious materials. These include labour, marketing – especially if you buy from the big brands - general business running costs and of course, profit. On the other hand, the resale value of a second-hand ring is pretty much down to supply and demand. As there isn’t much enthusiasm for second-hand engagement rings from the ladies who would be wearing them, the people most willing to buy such rings are usually jewellers who dismount the stone to reuse and send the metal for scrap. The same jeweller can buy a new diamond, in perfect condition, together with its original certification, at wholesale cost. So, a second-hand diamond, which may need recutting and might then have to be recertified, is less attractive. Even in perfect condition and with the certificate, it would still be a second-hand diamond to the end purchaser.

WHOLESALE MARKETS FOR PRECIOUS METALS VS DIAMONDS

The wholesale market prices of diamonds, gold and platinum as commodities go up and down. The prices of gold and platinum are linked to the health of the world economy because gold is a hedge against currency fluctuations. But the price of diamonds depends entirely on fashion and marketing, and is maintained at an artificially high level because supply is rigidly controlled by big diamond producers like De Beers who used to have a monopoly, but still have enough control over supply to effectively set prices.

You might have better luck maintaining your financial investment in your ring if it is a lovely, and fairly large ruby, sapphire or emerald, as these are much less of a commodity and more individual than diamonds. But even here, most of the other caveats will still apply.

So, don’t spend more than you are comfortable with on a ring, and please don’t ever think of it as a financial asset!

Think carefully and decide How Much You Should Spend and simply enjoy the pleasure it will give you both.


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