Investment Risk Series: Issue 2
Last week, we discussed financial considerations when deciding what to invest in. We went over how much it costs to enter the diamond investment space. This week, we will consider various risk levels and how they impact comfort and confidence as an investor.
In the coming weeks, we will discuss various risk strategies to finish the year off with low-risk and high-yield investments in mind. We have a broad range of newsletter recipients- from first-time investors to seasoned clients who have worked with us for many years so we will address various investor ranges throughout this series.
Last week’s blog: Understanding how much money it takes to invest Next week’s blog: Deciding which markets you’re interested in exploring
Deciding how much risk you’re comfortable taking
Once you’ve researched and decided how much funding to allocate to investing that addresses your goals, it’s time to start planning your strategy.
A large consideration would be where you are financially and where you hope to be. You must also include how much time (presumably) you have to reach your goal. There are always tradeoffs to consider. For example, someone in their 20s may be more willing to take larger risks if there are expectations of larger rewards, though they may not have as much money to use for investing because they are starting off in their careers. Meanwhile, someone who is retiring may be in a greater position financially, to construct each portfolio best but may not be as comfortable with risky investments. Are you planning to start a family? Are you preparing for retirement? Do you have children leaving for college? Do you need fast cash? Are you comfortable enough with your cash flow that you have the opportunity to hold your investments for larger returns? Factors such as time horizon and risk tolerance should be assessed on a case-by-case basis to determine how to best construct each portfolio to fit the individual needs of each investor. These are important questions that barely scratch the surface. What risks are you willing to take? Investors have many investment options, each with its own advantages and disadvantages. Regarding diamonds, the main risk to consider includes time limits. Similar to buying or selling a home, investors are required to allocate time for the right buyer to come along, which can take time depending on the diamond and the price. FCD investments are not ideal for investors who need immediate cash. Diamonds are typically meant to be a longer-term investment as shown below - investors receive maximum returns by holding onto their FCDs for longer periods of time. For instance, according to the data below, if you invested $100,000 on a Fancy Vivid Pink diamond in 2005, today, it would be worth $569,900 as a base cost at wholesale, not considering factors specific to that particular diamond. At auction, Fancy Vivid Pink diamonds have sold for $3,311,258 per carat as well.
That being said, another major risk is selling your FCDs too soon. I’m sure everyone who sold an Argyle diamond before November 2020 is now seriously regretting their choice because the cost of high-quality Argyles has skyrocketed after the mine closed. Another thing to consider is the storage of diamonds. Storage and insurance are the only costs associated with the investment - unlike almost every other investment in hard assets. Yes, you can wear your investment and show it off as jewelry. However, we recommend that our clients store their investment-grade diamonds in a secure facility such as Malca-Amit and insure their investment to maximize gains.
Please email FCD Invest at firstname.lastname@example.org to discuss your personalized long-term investment strategy. For more information on Fancy Color Diamonds as an investment, please visit our Fancy Color Diamond informational page linked here.