Although people’s obsession with gold goes back hundreds or even thousands of years, diamonds are a relatively new one. Like any other gem stone, diamonds are valuable because they are rare and in high demand. Without the demand though, they would be worthless. So why is it that most American males must enter the prime of their lives spending thousands of dollars on a tiny piece of carbon?
Don’t Call a Diamond Ring an Investment
At a time in most people’s lives when they should be maxing out their retirement contributions or saving for a house, many feel forced to trade all that money for a diamond ring. And it’s hard to go against societal pressures on this one since nearly every person on the planet has come to expect a ring as part of the engagement process. So what’s a person to do?
There’s a common myth floating around out there that a diamond ring is some type of investment. In the late 1800’s diamonds used to be pretty rare but with the discovery of substantial diamond sources in the second half of the 20th century, diamonds became more and more abundant.
The only reason the price has remained so high is that DeBeers has steadily purchased all diamond mines across the globe in order to control prices. That monopoly ended in 2001 but we’re still left with the aftermath.
Engagement Rings Are a Depreciating Asset
Like a car, a diamond is a depreciating asset since it loses a large portion of its value the second you buy it. Think about gold and silver. The market for them is very liquid and fungible since you can store coins, sell them at any time or even trade them later on. During that time frame they might even appreciate and provide a hedge against inflation. That’s not the case with diamonds though since the resale market is nearly illiquid.
Have You Ever Tried to Sell a Diamond?
Since there’s generally a 100% to 200% markup on the retail price of a diamond, most stores won’t even buy back diamonds from consumers for two reasons. The first is that since most retailers receive their diamonds from wholesalers they don’t need to pay for them until they’re sold. So there’s no point in risking capital on customer’s diamonds that may never be re-sold.
The second reason is that retailers don’t want to have to make an insulting offer to diamond consumers since that would undermine the notion that a diamond is a good investment. One industry expertestimates thatthat a half-carat diamond ring, which might cost $2,000 at a retail jewelry store, could be sold back to a wholesaler for only $600.
What’s the Solution?
If you’re a young couple in love, the one thing you need to know about diamonds is that the price is so high because companies like De Beers set those high prices. There’s no point in telling yourself that diamonds are an investment, but if you can find a wife that shares your disdain for diamonds, you’re in luck. Sometimes, though, you just have to put aside the logical reasons why you shouldn’t buy a diamond ring and do it just to make your wife happy.
Bottom Line
During the process for planning your wedding, it’s inevitable that you’ll need to consider your financial situation for both the present and future. Being frugal isn’t something that people will particularly want to be during such a special time as their wedding and engagement, but doing so could pay huge dividends down the road. If you and your spouse are looking to buy a home, a car or take an extravagant honeymoon following your marriage, you may want to think twice about what you spend on the engagement ring.
- Planning your finances for a future with your spouse can be overwhelming. A financial advisor can help with this, though. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Having a stringent budget can play a huge role and how successful you and your spouse are with your finances in the future. Try using SmartAsset’s budget calculator to get a plan started.
Photo credit: ©iStock.com/Elisaveta Ivanova, ©iStock.com/Oat_Phawat,©iStock.com/fufupix
FAQs
Engagement Rings Are a Depreciating Asset
Why shouldn't we buy diamonds? ›
Diamond mining takes a major toll on our natural resources. And it's not just land! Mined diamonds produce more than 125 pounds of carbon for every single carat, whereas lab created diamonds produce just under 10 pounds.
Is it worth spending money on an engagement ring? ›
Traditionally, there was a belief that spending three months' salary on an engagement ring was a standard. However, this is an outdated notion. Today, it's more about finding a ring that fits your budget and holds sentimental value.
Why do engagement rings lose so much value? ›
Value at Resale
Diamonds typically lose between 25 and 50 per cent of their actual worth upon resale due to market fluctuations, the markup on your ring, and the decline in diamond prices.
What makes a diamond less valuable? ›
Clarity refers to how many inclusions a diamond has. Diamonds have inclusions, like many other stones from nature. Diamonds can also have blemishes and scratches which can affect clarity. Blemishes and scratches are found on the surface of the diamond, and these are something that lowers value.
Why is diamond not a good investment? ›
Like a car, a diamond is a depreciating asset since it loses a large portion of its value the second you buy it. Think about gold and silver. The market for them is very liquid and fungible since you can store coins, sell them at any time or even trade them later on.
Why Millennials don t buy diamonds? ›
Natural Diamonds Aren't High on the Priority List. Millennials would rather spend their money on experiences rather than material things. They would rather take a vacation in another part of the world than to buy expensive jewelry, for example.
Is $2000 too little for an engagement ring? ›
The study found that nearly half of all respondents are spending between $1,000 to $4,000 on their engagement ring, so the average cost truly varies. This data highlights that while some may opt for more expensive rings, many people find more affordable options that suit their budget and preferences.
How much should you realistically spend on an engagement ring? ›
The ideal amount to spend can vary based on your circ*mstances and preferences. Customarily, spending about two months' salary on an engagement ring for women is often suggested. This old-school rule is the most popular way to calculate how much to spend on an engagement ring.
Do I really need an engagement ring? ›
Ultimately, this really comes down to your personal preference. If you like the traditional look of an engagement ring and wedding band, then yes, you should wear both.
One factor is the retail mark-up. Jewelry retailers, like those in most other industries, buy products at wholesale and mark them up – some a lot more than others. Unfortunately, this means that the intrinsic worth of the diamond, and therefore the resale value, will be much lower than what it was purchased for.
Is $1000 too cheap for an engagement ring? ›
A $1,000 budget for an engagement ring is a practical starting point that aligns with many people's financial realities. At this price point, you're typically looking at a smaller carat weight or considering alternative options such as lab-grown diamonds which often offer a better value.
What is the golden rule for engagement ring prices? ›
According to this 'standard,' you should spend two months of your salary on your beloved partner's engagement ring. While it's not wrong to follow this rule, it's not required! The two-month rule isn't rooted in any cultural tradition. It started out as a marketing strategy by the diamond corporation De Beers.
Is VS1 or VS2 better? ›
VS1 is higher than the VS2 grade. The only difference between the two is a VS2 diamond's impurities can be easier to spot than those in a VS1.
What color diamond is the cheapest? ›
By contrast, although white (not clear, but diamonds with a milky-white tone) and black diamonds are quite rare, they have not managed to capture the favour and attention of the public and are considered to be the least valuable of all coloured diamonds.
Why diamond is not good for everyone? ›
If your zodiac sign is Aries, Pisces or Scorpio, you should not wear the diamond because according to astrology, diamonds can bring disharmony to your life. Diamond is the gemstone for those who are born under Virgo and Libra as it bestows good luck and prosperity.
Why is it unethical to buy diamonds? ›
Unfortunately, this is not blowing the issue out of proportion. Some diamonds are mined and sold to finance rebel groups that kill and destroy. Other diamonds are mined under inhumane conditions that bring immense suffering to the miners. This is why it is important to ensure that your diamond is ethical.
Is it unlucky to buy a diamond? ›
Diamonds are precious gemstones that hold great value worldwide, and they are traditionally connected with luxury, beauty, and positive meanings like love and commitment. In the end, whether diamonds are considered lucky or unlucky depends on a person's own beliefs and how their culture interprets them.
What are the negative effects of diamonds? ›
Scientific Perspective: Allergies and Skin Reactions
While diamonds themselves are inert and unlikely to cause allergic reactions, the metals used in diamond jewelry, particularly nickel in certain gold alloys, can cause skin irritations for some.
What are the problems with diamonds? ›
But the coveted title of “world's largest diamond mine” varies. Mineral resource exploitation also causes irreversible damage to the natural environment including deforestation, soil disturbance, air emissions, surface water pollution, groundwater contamination, dust, noise, workplace health and safety, and others.
