Adding Hard Assets is a Great Way to Diversify a Portfolio

Many investors believe that hard asset investments are meant to be enjoyed, held onto and later sold for a profit. Typically, the people who invest in diamonds or other precious gemstones, hold on to their investment until they can sell the hard assets; for more than the original purchase price.

One thing is for certain. When you adopt the mentality of diversifying your portfolio, you have created a buffer against a financial crisis, which can last over a relatively long period of time; and has proven to protect against inflation. Furthermore, it has been established that investing in a number of different asset classes will smooth out a portfolio's performance over time, as it can be expected that some assets will zig; while others may zag.

Many investors are surprised to learn that only hard assets have outperformed all other major asset classes, since the financial crisis. The investing lesson here is that diversification as a hedge works. Especially within a major asset class, such as gemstone investing and other hard assets.

Companies Make Money During Inflation And Investors Can Too

Even if stocks and other financial securities aren't performing well, gemstones tend to perform independently from other financial markets. Thus, gemstone investing is considered by many, to be a very safe investment.

Not to be overly cynical about equities, such as shares and options, but most investment firms today, are still able to make profits despite economic distress around the world. How? Even though inflation is being felt in many countries, companies have actually pushed through higher prices, creating increases on the cost of their end product. Therefore, during a inflation period, these companies have been selling their products for much higher prices; year after year. As such, their huge earning increases were not the result of improvements in productivity, but instead based purely upon the inflated market prices; they have been charging consumers for the goods they are selling.

So, rather than investing in the shares offered by one of these companies, why not purchase an asset you can own yourself, and enjoy a profit when other investments are affected by inflation? The best part of all, is that you will be able to find gemstones in varied sizes, for various prices, and the value of your gemstone investment (in most cases) will continue to grow; over the long term.

As Gems' Value Rises Currency moves Toward a Value of Zero

In a high-inflation environment, a currency moves gradually, but consistently; toward a value of zero. Similarly, in a solvency crisis, a currency can go to zero overnight. Thus, instead of a deflationary environment being bearish for gemstones, it is arguably even more bullish; than a high-inflation scenario.

Deflationary economic situations do not detract from the value of gems or similar hard assets and other fundamental stores of value. Consider this ... it is not an accident that the U.S government passed the Gold Reserve Act in 1934, taking control of all gold in the country, during the depths of the Great Depression – when the United States was suffering the worst deflation it has ever experienced, before or since. At that time, regulators reached the conclusion that they had no choice but to actually make it a criminal offence, for U.S citizens to own real money because of deflation; not inflation.

There are many commodities that will soar in value, as the wave of inflation caused by insanely reckless money-printing, leads to the worst global inflation; in at least three decades. Simultaneously, the U.S and a few other hopelessly insolvent economies are facing deflationary spirals, combined with high inflation for basic consumer goods, and the only asset class with fundamentals that can protect against inflation and deflation; are precious stones.

Country With 2nd Largest Population is Enamored by Diamonds

Without a doubt, the western middle-class is still ahead of its Chinese peers in some respects. For example, 25 percent of all U.S households made $75,000 or more in 2010. The number of comparable households in China today is about three percent. But these statistics don’t paint the whole picture, when compared to actual numbers. Imagine this. With 1.3 billion people in China, one must multiply any percentage by a factor of four to compare with the U.S. In simple terms, when only six percent of Chinese households earn $75,000 or more, their country will equal the U.S in terms of luxury spending power at a certain basic level. Upon reaching 12 percent, China will double the US in that ability.

Luxury spending in China is equivalent to, or even surpasses, such spending in the West; today. Therefore, logically, it’s possible that any consumption trend of the growing middle-class in China, will lead to them influencing or even controlling a given market; even before the projected middle-class growth numbers are achieved. This remains especially true, as the World’s second largest populated country becomes enamored with diamonds, and ignites the growing popularity of gemstone investing in Asia; and other parts of the World.

As the global markets recover, and countries like China and India continue to thrive and grow, there be new economic opportunities and the prosperity that results, will bring forth more investors; with increased motivation and spending power. With that being said, things have already come to pass as Lawrence Ma predicted in his speech, back in 2006. Although interest in diamonds is relatively new for the Chinese, who have typically gobbled up gold to secure their cash, more and more are seeing that investing in diamonds is a smart move; for the market's apprehensive and uncertain investors. In fact, even the World Gold Council recently announced that China is poised to become the world's largest gemstone and gold buyer in 2012, surpassing investors in the United States, Europe, and India.

Branding Can Provide Assurances When Investing in Diamonds

For the second year in a row, National Jeweler’s exclusive year-end survey showed that sales continue to rebound for retail jewellers, with 72 percent of respondents reporting gains in same-store sales in 2011. With all these positive development in the gemstone marketplace, most would agree that brand-intensive marketing is both necessary and desirable, however there is much disagreement as to whether it is only jewelry that should be branded; or whether a branded diamond is a viable option.

Over the last few years, there have been a number of significant efforts to brand diamonds, with the unique “Leo” and “Hearts on Fire;” being the most significant examples.  Nowadays, Industry experts believe that the De Beers’ “Forevermark” diamond, will become the new standard; for those investing in diamonds. Though being available for several years now on the world gems market, the De Beers’ “Forevermark” diamond is only being introduced in the United States; sometime at the end of this year. Furthermore, these precious gemstones will only be available, at a few hand-picked retailers.

All “Forevermark” diamonds are graded at the Forever Diamond Institute in Antwerp, Belgium, and according to De Beers, a “Forevermark” inscription indicates that the diamond has met the company’s standards; of assurance, quality and integrity. Each “Forevermark” diamond will have individual inscription on its table, with the “Forevermark” brand and identification number; using a patented technology. It has also been said that this inscription is invisible to the naked eye, as the actual inscription is only one-20th of a micron deep, and can only be seen using a special viewer; which is only available at authorized “Forevermark” jewellers.

Another Reason Investors are Investing in Gemstones

Looking for another reason to invest in gemstones? The increased market volatility of world economies and financial markets, will boost gemstones as a guardian and safe-haven; for your investment principle.

If we reflect upon the global turmoil that has followed investors since September 2008, volatility has become commonplace; in many international financial markets. This turmoil is pushing more investors toward the safety of gemstone investing, and driving up the prices of precious gems. The only associated risk with investing in gemstones, is related to the long-term outlook, for the global economy.

Regardless of political uncertainty, even if a currency investment remained flat, or even strengthen a bit; gemstones would continue to rise in value. Furthermore, the former Chairman of Princeton Economics International, recently speculated that investing in sapphire could rise sharply; beginning in October-November 2012. This will not occur as a reaction to rising inflation, but instead due to a general loss of confidence, in the United States government.

Despite Political Turmoil Gemstones Will Increase in Value

The situation remains extremely precarious and poses an unseen threat to the global financial market. Yet, you can still make money if you consider investing in alternative assets such as gemstones. Because gems often appreciate more, and are easier to liquidate, this is a smart investment strategy to consider;  in an increasingly uncertain economic environment.

As with any investment, investors must educate themselves and exercise a good deal of caution, and good old fashion common sense. As a rule, precious gemstones increase in value, at the rate of inflation. Of course, there are always exceptions. One good example is blue topaz, which used to be rare, and demanded a fine price. However, when the method of transforming common white topaz into blue topaz became available, the gemstone suffered a considerable drop in value. On the other hand, another notable exception is tanzanite. After the primary source closed, it skyrocketed in value. These examples represent exceptions to the rule. And therefore, unable to predict the future value of a gemstone, an investor's best strategy for investing in gemstones; is to buy them at the lowest price possible.

As a result of living in a globalized world, we sometimes end up paying for mistakes in judgement, that we did not personally commit; and had no immediate control over.The point I am trying to make, is that there is no reliable information available to assess the risk-return trade-offs, that traditional financial assets, such as stocks and heavily traded commodities possess; when their future is determined by political turmoil. When investors stop to consider this fact, some say that investing in diamonds is a wise investment, and deserves careful consideration.