Girl, Is The Diamond Your Best Friend?

While it is true that a diamond is really a beauty to behold, this blog entry is about to challenge the common notion about the diamond, or jewelry in general, as an investment.

A diamond is a girl's best friend. Or so the saying goes. Was it DeBeers who tagged that line in order to attract buyers of their luxurious products? Or was it a justification cooked up by the women in order to rationalize their love affair with the precious stone?

And we commomly hear it from the wives or girlfriends: a diamond is an investment. And they justify the reason for buying those expensive jewelry under the guise of investing.

But let me break down that argument level by level.

What is an investment by the way? In simple layman terms, an investment is something you put your money into with the expectation that it increases in value as time goes on. At face value, the argument that a diamond is an investment seems to hold true. When you buy a diamond and you sell it at a future date, chances are your selling price is higher than your buying price. And that constitutes profit. And profit equals a good investment. Right?

Maybe.

The reason I said maybe is that when our ladies buy diamonds, they do not really buy it with the intention of selling them in the future. They intend to hold on to it for as long as they can. Now, tell me if I am incorrect with that statement. So, with the purpose of the investment defeated, we cannot really classify it as such.

Now, let's assume that a couple who used to be pretty financially well-off suddenly feels the squeeze in their budget. Maybe the business has gone bad, or either of the couple got laid off from work. You would probably think that this would be the perfect time to let go of those jewelry so that they can afford some liquidity in their finances. But does it really happen? Chances are other valuable things in the household would go first before selling those diamonds locked up in the jewelry boxes or safes. Maybe the extra car would go, or that plasma TV, or those other seldom-used appliances at home. But the jewelry would go last, if they go at all.

And then, assuming that the couple would really need the extra money from the sale of those jewelry, that would mean that the order of hierarchy in selling valuable things in the household has reached critical levels. Selling jewelry would almost be unthinkable, but if they do reach that point, chances are they would almost be willing to sell the jewelry at bargain prices. And that, sad to say, is what usually happens. Just to be liquid, they sacrifice the profit from their so-called investment. And when that happens, can we just say that it was, um, a bad investment?

I have nothing against buying jewelry or diamonds as long as the money used to buy them is really disposable income. Money you can afford to splurge on luxuries. Some people do really have budgets for those. These luxury items may not make them earn more money, but the status symbol it brings may just be as important for them. There are things money can buy to make some people feel good about themselves. And diamonds are certainly in that category.

But to justify the purchase as an investment would be like saying I bought my pet arowana to secure our home when we are away.