Would you ever think to compare diamonds and real estate? At first glance, they seem like two completely different things.
Famous economist Anthony Sutton first drew the parallels in his work “The Diamond Connection.” Sutton notes that a diamond is more akin to real estate than one might think because it, like real estate, requires time to convert into other forms of wealth. While a diamond can always be sold within a few hours, the cost is prohibitive. To realize the investment takes time. A diamond sold under pressure is a diamond that will not yield its full value in the market place.
Let’s look from an investor’s prospective how investment in diamonds and real estate, two “hard assets,” correlate and differ.
The most important similarity is that both real estate and diamonds are hard assets, similar to other commodities and unlike bonds and stocks.
Hard assets in general are considered inflation hedges. Hard assets are typically negatively correlated with bonds and stocks. In other words, when the prices of stocks and bonds drop, the value of hard assets tends to appreciate.
That being said, not all the hard assets perform the same. Financial crisis proved that real estate could be very highly volatile. Diamonds, on the other hand, are part of a relatively closed industry that is much more stable.
LONG TERM INVESTMENTS
Diamonds and real estate are both suitable for investors who are not looking for fast returns on their investment. In each case, you risk losing money if you try to “flip” your investment. Colored diamonds do appreciate in price relatively quickly, but it would still be wise to let them “mature” enough that the investment return would be much more substantial.
The real estate market history is full of “bubbles” crashes. Unlike the real estate market, the diamond market has proven to be much more stable, so colored diamond investors incur less of a risk.
Both diamonds and real estate will provide the owner with additional enjoyment and value, besides the monetary gains of the investment.
Diamonds will always remain a luxury item, with classic and eternal beauty. You always get enjoyment out of your dazzling diamond set in that special piece.
The benefits of owning real estate can be two fold. Real estate investors very often rent out their properties, providing an additional source of income, or enjoy the use of their properties themselves.
Diamonds have no maintenance costs during the investment period. Diamonds are the hardest material on earth, literally, so they don’t need repairs or renovations and they don’t wear with time. There are no surprises with diamond investment, what you pay upfront is the only sum you need to worry about.
Real estate, on the other hand, requires constant maintenance and repairs. Very often real estate has monthly management fees. All these costs need to be calculated into the cost of investing in real estate.
Diamonds are obviously very portable. They actually have the highest size to value ratio of any natural resource or any other investment good. Several millions of dollars worth of diamonds can fit in one handful and can be transported in your pocket.
Unlike diamonds, real estate is not “very” portable; in fact, it cannot be moved at all. But let’s say, for arguments sake, you could move a property. Most of the time the value of the real estate is linked to the location it occupies, which means even if theoretically somebody could move his house, the investment value would change based on location. Real estate is not physically portable and the value does not transfer easily either.
STABILITY AGAINST EXTERNAL CHANGES
Real estate is very vulnerable to natural catastrophes, political instabilities, or even wars. Mainly because of real estate’s lack of portability, it is a “sitting duck” in the face of external influences and changes.
Diamonds are the best assets to have in case of life changes, or even emergencies. Diamonds can easily be carried on your person, wherever and whenever you may need to go. During the long history of diamonds they have served people as one of the only ways to transport wealth long distances and/or across borders.
In the world we live today portability and stability serve as major advantages for diamond investment. Life can change abruptly and having such concentrated portable assets is a source of comfort and security. Considering all abovementioned, colored diamonds, as the fastest appreciating stones, would be the most suitable choice for investment.