Hey everyone, it’s Whatever Wednesdays… it just happens to be the day after Valentine’s Day. After this special day with your significant other, you may be thinking that he/she is the one. For that reason, I thought it appropriate to post What You Need to Know About Diamonds.
Stock Photo from: Pexels
Small update/edit 2-16-2017
Ok, before we dive in let’s first discuss Diamonds versus Engagement Rings.
While diamonds themselves are not necessarily a depreciating asset, an engagement ring is. The reason for this is because an engagement ring is kind of like buying a customized car. You’ve decided how you want it to look with whatever qualities appeal to you. What you buy your ring for, what it appraises for, and what you could actually sell it for are very, very different. It’s kind of like buying a BMW M3 customized to exactly your liking, signing the paperwork and driving off the lot.
As soon as you’re off the lot and try to sell the car to anyone, it’s worth 20%-30% less, because it’s not new anymore. Except, for an engagement ring, you’re probably looking at losing 50% of its value.
Wait… so let’s say I bought a customized engagement ring for ~$50k. If I try to sell it back to the same store, they would only buy it for maybe $25k?
Yes. This will be even lower if you try the pawn shop route.
For this reason, if your significant other does not want/need a diamond, then it’s probably in your best interest to not buy one. The other options are Cubic Zirconia or Moissanite. Or if you don’t want the look of a diamond, you can go with any other stone you prefer, like an emerald, sapphire, etc. Cubic Zirconia and Moissanite are synthetically created stones that simulate the look of diamonds. To be honest, these stones are so good nowadays that it would be very difficult to confidently spot a fake without the means to appropriately test it.
Additionally, some people end up buying some really expensive rings and then don’t wear them for fear of theft. Think about it. Let’s say you spend $50k on an engagement ring. That’s basically the cost of a well-equipped BMW on your finger, with an actual cash value of around $25k. That’s scary.
For this reason, people may have Cubic Zirconia or Moissanite replicas of their engagement rings to wear out in public.
If that’s so, then why do people buy diamonds?
Mostly it’s because of marketing:
“A diamond is forever.” – De Beers
This slogan, to be quite honest, was genius. Its ability to tie marriage as a forever concept to a stone which is also “forever” is so powerful. Even though the originally slogan debuted in 1948, it still has power today. In case you didn’t know, they also came up with the concept of the “4 C’s“.
Perception is reality. As long as people continue to value diamonds and what they represent, then they will be valuable.
Ok, well what do I need to know?
Well… first things first. For full disclosure, knowing all of the above, I still bought a diamond engagement ring (and wedding band) for my wife. I saved during the years of internship and most of residency in order to buy her ring, as I already knew she was the one. However, I did a ton of research before purchasing her engagement ring because I wanted to try to get the best bang for my resident salary’s buck.
All that said, as much as I don’t want to spread propaganda, you do need to know what the “4 C’s” are as a starting point.
Cut, Carat, Color, Clarity
I’ve listed them in this order because I believe that to be the order of importance. Unfortunately, that is usually not the way its emphasized.
Usually in the popular media whenever celebrities get married they will focus on the carat size of the ring and the cut style. In my opinion, that is not the most important part of the 4 C’s. When I refer to “cut” in the 4 C’s, I am referring to how well the diamond is cut (not necessarily its style).
I think the beauty of a diamond revolves around it’s ability to reflect light. Oooo, shiny.
You can imagine that if certain angles are off that the diamond’s ability to reflect light will be effected significantly.
What? I’ve been in jewelry stores all the time, every single diamond in there sparkles like crazy…
You’re absolutely right… however, take a look at the jewelry store’s lighting versus any other store and you’ll see that the amount of overhead lighting in their stores is honestly just ridiculous. Seriously, next time you’re in a mall walk into whatever brand name jewelry store is there and look at their display lighting set-up. You will notice that they have done their best to maximize the amount of overhead lighting. Even the display cases themselves probably have their own lighting. This is all in order to make the jewelry they offer sparkle as much as possible.
Unless you work in a jewelry store or some other setting with a lot of overhead lighting, your diamond will not sparkle like that on a day-to-day basis.
The real test of a diamond is how it does in a normal setting, such as fluorescent light in an office or low-light while dining out.
For the most part, when I am talking about cut, I am talking about a Round Brilliant Cut. This is the most extensively evaluated cut that exists and it practically has its own science behind it. These cuts are considered to be “classic”. The reason for this is because this cut is considered best way to harness the smallest amount of light and maximize its reflectivity which causes that sparkle.
What is a Round Brilliant Cut?
Why does this matter?
Quite simply, diamonds are usually cut in such way to extract as much weight as possible from the “rough diamond”, which is the raw diamond which hasn’t been polished or cut. Carat weight has the heaviest influence on price, so you can imagine that when cutting a diamond they will try to leave as much carat weight as possible to maximize its value.
However, that isn’t necessarily good for how much light the diamond reflects, and may push it off of the “Tolkowsky Ideal”.
We’ll talk more about this in a future post because Cut is a more technical topic about Cut Grading. I just wanted my readers to know that I think it is the most important C of the 4. I will also go over the non Round Brilliant Cuts later in a different post, for those interested. Additionally, recently helped my friend buy a very nice cushion cut diamond engagement ring, so I’ll share my experience there as well.
What about the other three then?
Well, the 2nd most important C is Carat. This is basically just how much volume of diamond there is and how much it “weighs”. One carat equals 1/5 gram. However, it is important to understand that this is not a linear relationship. A diamond with the exact same Cut, Color and Clarity that is 2 carats versus 1 carat is not just twice as expensive.
It is, on average approximately 3x as much for a 2 carat versus a 1 carat. A 3 carat is probably around 8x the amount of a 1 carat of similar quality.
For anything above 3 carats, the market is so small that there isn’t enough data to make a reasonable estimate of what you would have to pay… or what it would be worth.
All that said, there are what I consider to be certain “breakpoints” for diamonds. The most common is 1 carat, 1.5 carat and 2 carat. The difference in visible size for a 1.4 carat versus 1.5 carat is virtually impossible to tell. And… I can’t prove this necessarily, but I think buying just beneath these break points are the best value. ie, buy a 0.95 carat, or a 1.42 carat, or a 1.91 carat.
The 3rd C is Color.
For the majority of people, they want their diamond to be as “colorless” as possible, because that is the ideal. However, this is kind of up to you.
Color is graded along a spectrum of:
D through Z
D-F = “Colorless”
G-J = “Near Colorless”
K-M = “Faint Yellow”
N-R = “Very Light Yellow”
S-Z = “Light Yellow”
I can go into more detail on this later, but the most important thing to understand is that people have different color sensitivities. For some, they’ll be able to see the yellow in even an F, while for others, they can’t see any yellow at all in a J. In my “humble” opinion, I think the best bang for your buck lies in the G-J spectrum.
I will do a comparison in a later post, about the “Best Bang For Your Buck Diamond”
The 4th C is Clarity.
For the majority of people, you will want the highest clarity that you can see with the naked eye.
Clarity is graded on a spectrum of:
F to I3
F/IF = Flawless/Internally Flawless
VVS1, VVS2 = Very, Very Slightly Included
VS1, VS2 = Very Slightly Included
SI1, SI2 = Slightly Included
I1, I2, I3 = Included
What does “Included” mean?
When the diamond is formed small imperfections can be created. If these inclusions are very, very small or very small, you likely won’t be able to see them with the naked eye. Some VS2 Very Slightly Included and SI1 Slightly Included diamonds may be “eye clean” meaning clean to the naked eye because of where the inclusions are.
Why is that?
Well, remember when you have a loose diamond, you can see it from all angles. For example, once the diamond is set in your engagement ring setting, it will be primarily be displayed “face-up”, so any inclusions that we were only visible face-down won’t ever be seen. In general, inclusions directly under the table facet are easier to see. It also depends on how large your diamond is, as the larger the stone gets, the harder it will be for it to be “eye clean” at SI1 or higher.
For some, if may be important to know that your diamond is flawless, but you will pay a heavy premium for it.
This doesn’t seem so bad… so I just pick a diamond with the “best bang for your buck” stuff and I’m good right?
Cut, Color and Clarity are all subjective grades from diamond experts. And like many experts, they may not agree with each other. For this reason, you should make sure whatever diamond you buy has a certification with the 4 C’s graded on it by an authoritative gem lab.
For Round Brilliant or Princess Cuts, I would only use AGS, because they are the only gem lab to certify those cuts as “ideal” or not.
The other common gem labs which certify diamonds are the International Gemological Institute (IGI) and European Gemological Laboratory (EGL). Unfortunately, these labs are considered to have “lax” grading standards. In that sense, they tend to rate diamonds at a higher rating than they should have compared to GIA or AGS resulting in a “too good to be true” deal.
You don’t have to believe me though, you can just google GIA versus AGS versus IGI versus EGL and there are many articles on this phenomenon.
For this reason, I would not recommend IGI or EGL… if it’s too good to be true, it probably is.
Wait, you said “Cut” is the most important right?
What about “Hearts on Fire” diamonds? Aren’t they the “World’s Most Perfectly Cut Diamond?”
Hearts on Fire diamonds are ideal cut Round Brilliants with a brand name and heavy marketing.
Overall, they are good diamonds, but they also command a high premium for the brand name. Someone has to pay for all that marketing.
For that reason, I would not consider them good “bang for your buck.” I’ll discuss this more in my “Best Bang For Your Buck Diamond” future post.
What about “Breakfest at Tiffany’s?”
Oh yes of course… Breakfest at Tiffany’s…
Audrey Hepburn is awesome. However, the Tiffany’s brand name also carries a heavy premium as well. Someone has to pay for all that marketing.
I’ll discuss this more in my “Best Bang For Your Buck Diamond” future post as well.
While diamonds are not necessarily a depreciating asset – engagement rings are.
If your significant other is ok with Cubic Zirconia or Moissanite or a non-diamond, then that’s probably better (moneywise).
However, if you want to buy a diamond, you do need to know about the 4 C’s. Just remember, don’t just get stuck on carat.
Cut is as important (or in my opinion, more important) than carat.
Color and Clarity are also important, but are dependent on you to select the range you are comfortable with.
Just remember that Cut, Color, and Clarity are Subjective Grades.
Make sure your diamond is certified by AGS or GIA. Preferably AGS if you have a Round Brilliant or Princess Cut. Not IGI or EGL.
I’ll talk about Cut Types and Cut Grading next week. Then maybe Best Bang for Your Buck the week after that.
What do you think? Did you learn something new?
Questions, Comments and Suggestions are welcome.
You don’t need to fill out your email address, just write your name or nickname.
Like these posts? Make sure to subscribe to get email alerts!