Buying an engagement ring for my wife was one of the most exciting but overly complex things that I have ever done in my life. You read all the taglines from marketers: A diamond is forever. Diamonds are a girl’s best friend. You can’t put a value on love. It goes on and on and on. When I was going through the process, I thought it would be fairly easy. But boy was I wrong.
Quick sidenote: In my brief research, I actually learned that diamonds are in fact not forever. Apparently, diamonds will degrade to graphite, although diamonds should last millions to billions of years if temperature conditions remain at levels tolerable for humans. Additionally, diamonds can burn in certain conditions. Since diamonds are made out of carbon, at a high enough temperature with the presence of enough oxygen, a diamond can combust to form carbon dioxide. Science lesson complete.
I was the last of my friends to get married, so I had plenty of advice from them. They schooled me on the four C’s: cut, clarity, color and carat weight. They talked me through what type of setting I should get. But even with all this help, it was still daunting.
The question that kept coming up in my mind was, how did I know whether or not I was getting a good deal? How is the cost of these small rocks really determined? More importantly my eyes weren’t trained like to notice imperfections with a jeweler’s loop. At some point, I had to take a leap of faith that what I was getting in fact matched the GIA report.
On top of that, everyone refers to a diamond ring a “good investment”. This is something that always baffled me because I saw diamond engagement rings selling for half their original price after a broken marriage. For a second, I thought about buying a used diamond ring, but then something about it creeped me out.
I ended up buying online to save some money through James Allen. While most people are afraid to buy an engagement ring online, I felt confident from all the positive reviews. So, I took the leap. I saved about 20% from what I would have paid at a local jewelry store.
What To Consider
Since this is a finance website, you’re probably not here to read about my experience buying a diamond. Although I’m sure for a couple of you, it’s topical. So some quick advice. First, figure out the style of ring that your spouse wants. It’d be awful to give such a meaningful gift that they really don’t like. On top of that, go in a store and get a feel for the size of the diamonds. The difference between a .99 and a 1.04 is minuscule, but you’ll pay a huge premium to say you have a one carat diamond. Additionally, you don’t need to spend two or three months of your salary on a ring. Don’t get pressured into buying a ring that is more than you feel comfortable spending.
Rise in Popularity
A common belief is that diamonds were not used as engagement rings until the De Beers company marketed the famous “a diamond is forever,” in 1947. This is actually incorrect.
The first well-documented use of a diamond ring to signify engagement was by Archduke Maximilian of Austria in Vienna in 1477. The Archduke was the original trendsetter for the higher social classes as they began to give their loved ones diamonds, and it continued to spread throughout the masses.
For the next 450 years or so, diamond engagement rings were thought to be reserved for nobility and aristocrats. Those that did not fall in these categories chose to go with simple gold bands, or as they are known, “posie bands”.
The Oppenheimer Family
The Oppenheimer family, under the De Beers company, get most of the credit when it comes to diamonds since they were the first ones to market diamonds to the masses. Their campaign in 1947 was in effort to boost up sales since diamond sales had declined after World War I and the Great Depression.
At the height of the De Beers empire, they controlled close to 90% of the world’s diamonds. They were able to do this as they continued to buy new diamond mines as they were discovered, to the detriment of the market. They were also known to murder and kidnap those that tried to interfere with the diamond supply market.
Since they essentially had a monopoly on diamonds, they were able to set the price. Here’s the really crazy part. Diamonds aren’t rare. They are abundant. Diamonds are a marketing gimmick that pressures men to pay a premium in order to impress the women they love.
With all that said, the Oppenheimer family has now lost the monopoly that they once had. Before they sold off their business, they dropped control to only 33%, losing market share each day due to the influx of diamonds found in U.S. and Canada mines. Losing this monopoly has put price pressure on the diamond.
Actual Valuation of a Diamond
The Rapaport Group has been one of the leading research and trading services for the gemstone industry since 1978. In their first report, they stated that you could buy a top-quality one-carat diamond for $6,000. Today, a top one-carat diamond is $11,000. I know it appears to have doubled. But, if you really look at the return, it’s closer to a 1.61% return on investment since 1978. This doesn’t even include the rate of inflation.
As a comparison, if you had taken that $6,000 and invested that money into the S&P 500, you would have had an annualized rate of return of 11.635% with dividends, or more than $26,000 on the original $6,000 investment.
Comparison to Other Gems
Based on the chart below, furnished by Gemsociety, diamonds aren’t even the most expensive gem that you could buy. That is left to either the Ruby or Sapphire depending on the size of the gemstone.
|Species||1 carat||1-5 carat||5+ carats|
In comparison, since 2005, Ruby prices have doubled in price and continue to rise due to their rarity. In fact, rare gems are on the rise, thanks to celebrities like Kate Middleton, who wore Princess Diana’s Ceylon Sapphire as her engagement ring.
Do you think that gems are the wave of future engagement rings? Do you think diamonds are good investment? Share your thoughts below.