The marketers claim a diamond is forever.And sure, it’s a hard stone. It lasts a long time.But what about financially? Is it equally durable? You’ve just sunk a small fortune into those rocks you’re giving on Valentine’s Day. Are they likely to hold or gain value over time?
According to the Rapaport Diamond Index, a respected industry benchmark, prices of top-quality stones have collapsed by as much as 80% in real, inflation-adjusted terms over the last 30 years. Even if you set aside the short-lived but massive price bubble back in 1980—around the time of a similar bubble in gold and many other commodities—the results have still been abysmal.The index has been measured since 1978 by Martin Rapaport and his firm, the Rapaport Group, which provides a variety of research and trading services to the gemstone industry. The index looks at prices for top-quality one-carat stones, those with the best color and clarity. While every stone varies, in 1978 a typical such stone, according to the index, cost around $6,100. Today it costs nearly $11,000.On the surface, that looks like a gain. But investors are frequently fooled by the effects of inflation. Taking that into account, the stone has actually lost about half its value in real purchasing power.Never mind that during the same period, anyone investing in a broad-based stock index fund—or even government bonds—made many times that money.
By Brett Arends, Feb. 12, 2010 WSJ