Why are diamonds not considered an asset?
Investing in diamonds: a good idea?
One of the possible investment strategies in the face of a rising inflation scenario is to invest in value stocks, that is, in assets whose value is stable over time and grows as inflation rises. But what are the best value stocks to add to your portfolio to bolster your asset allocation? That was the question Markus Merkel, CEFA, Head of Mandates and Cooperation Partner of Steinbeis & Häcker Asset Management GmbH, in the magazine Cash.online.
In addition to real estate and gold (which he expects to continue to appreciate in value soon), Merkel is analyzing an investment in the field of intrinsic assets that he describes as "exotic": diamonds. This is an investment that, like precious metals, would offer protection against inflation, with some obvious advantages. First, like gold, its increase in value is not taxed (it is not treated as income). In addition, their value usually increases with increasing inflation and can easily be converted into cash.
Investing in financial products related to diamonds is difficult, however. At best, one can invest in mining companies that are subject to the typical fluctuations of the stock markets. In fact, as Merkel emphasizes, the price of diamonds can also fluctuate significantly (again "Diamond Price Index" shows) and it is not a matter of course that it always stays the same or increases. This is because diamonds are part of the jewelry sector: their extraction, processing and marketing are part of a specific production chain that can be influenced by supply and demand.
"Carat" (the weight), "Clarity" (the degree of purity), "Color" (the coloring) and "Cut" (the cut) are the four "Cs" that define their quality. Diamonds can be found at a bank ordered and kept. But of course you can also buy them directly from the jeweler. If the supplier is particularly well-known, the quality and origin certification is usually reliable. But here too, in addition to the cases of counterfeiting, there is a broad debate about sustainability: In the past, the diamond mining industry has often been guilty of criminal acts by mining diamonds with illegal means in crisis areas.
Merkel thus comes to the conclusion that the risks and costs associated with diamonds may not be worth adding diamonds to an investment portfolio. There are indeed more effective ways to stabilize the value of your own portfolio. Diamonds should perhaps be viewed as a luxury item to enjoy and wear, rather than an asset whose value can be relied on.
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