Opinion: How to Think About your Diamond Portfolio
Years ago, a guy named George Holmes, then Editor-in-Chief of JCK (the most prestigious jewelry trade magazine) wrote an editorial entitled “Diamonds Aren’t Pork Bellies.” A cute title, for sure, and who could disagree? His point was that diamonds are not a typical investment vehicle, like commodities, equities, or even other hard assets like gold and silver.
You don’t buy diamonds, even for asset diversification, and then check the next day, or the next month, and consider whether to move more or less money into them based on short term price swings. And there’s a reason for that. Actually, there are two reasons.
Diamonds make sense in a diversified hard-asset portfolio in part because they’re, well, a form of diversification. Gold, silver, and diamonds will—over long-term time periods—outpace inflation and provide a hedge against depreciating currencies. But they won’t move identically to each other, or versus currencies. Hence: diversify into a breadbasket of hard assets and if one goes down this year, and another goes up, and the other stays flat, you’re hedged.
The idea of moving money in and out of any of these, like a person might weave through traffic on a multi-lane highway to gain a brief advantage—as one lane seems to go faster, then slower, then faster—rarely pays off.
For example, in the last twelve months, diamond prices are up about 2%, but since March they’ve fallen about 15%. What’s gold done since March? Down about 13%. Silver? Down about 20%. Does this mean people should sell silver and diamonds and buy gold? No, because in another six months, all those numbers could be reversed. No one can truly predict the future, even though folks in the financial industry often like to pretend they can.
Arguably an even better reason to include diamonds in a hard asset portfolio is that—in addition to moving slightly differently price-wise—diamonds yield another form of hedging the others don’t. As economic times become more unstable, and governments become more confiscatory, there is value in having a portion of one’s assets in a highly portable form and protected through self-custody. In stable times, trusting third parties is reasonable. During periods of financial uncertainty and even crisis, being able to self-custody one’s hard-assets, and knowing they can be moved easily, quickly, and inexpensively to any part of the world, provides a benefit other hard assets can’t deliver.
Thus, a better way to think about a diamond portfolio is in terms of what percentage of one’s assets should go into it. Even strong believers in hard assets don’t put 100% of their wealth into them. Investors balance hard assets with equities, cash, real estate, and other forms of diversification. In the same way, within the hard-asset portfolio, what should the split be? Some might choose 100% gold. Most would prefer diversification with gold being a large percentage, but with perhaps silver and other metals being included as well. Diamonds have a place, but that percentage shouldn’t be based on whether diamonds are currently going up or down in price. You’re not going to be day-trading them, any more than you do gold. You’re buying for the long term, for diversification. Decide on a percentage, change it if you want to, and then sit back and relax, enjoying the security that well-planned diversification will yield.
DISCLAIMER: The author, Jacques Voorhees, is CEO of Icecap.Diamonds, a company that operates a diamond trading platform for hard asset investors. Nothing in this article is meant to provide investment advice.