Kids don’t understand money. They don’t understand how to save it, how to spend it or how to stay out of money trouble.
According to data released by the Program for International Student Assessment, more than a fifth of U.S. teens lack basic financial literary skills.
In fact, Chinese students are ranked as the most financially literate teens, followed by Belgium and Canada. American teens ranked seventh overall in the assessment of science, reading and mathematics.
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This lack of knowledge is going to lead to problems down the road when it comes to saving to buy a car or a house, or even having enough money for retirement.
Of course, this isn’t something new.
The American College of Financial Services revealed that almost 75% of retirement-age Americans failed a retirement literary quiz.
But it’s not too late to reverse that trend, take control of your finances and build up your nest egg regardless of what’s happening in the market. But the key is having the right tools…
Adding Sparkle to Your Portfolio
Too many people are worried about whether they will have enough money for their retirement. As you start saving, a critical early step is to make sure your portfolio is properly balanced with a variety of assets. Last week, I wrote about the importance of diversifying your assets across more than just stocks to protect against sharp pullbacks and corrections that inevitably happen.
Sticking with the theme of adding rare tangible assets to your portfolio, I reached out to David Metcalfe, the president of Premier Diamond Group, for some information and tips on adding colored diamonds to your portfolio.
Jocelynn: Thanks so much for agreeing to chat with me. I’ve first got to start with the big question: Why diamonds?
David: We must differentiate between diamonds and natural colored diamonds as an asset accumulation vehicle, because the wealth accumulation potential for each is different.
The ascendance of natural colored diamonds as a wealth accumulation vehicle has undergone a number of stages. From what was once a marketplace for the wealthy dominated by major auction houses such as Sotheby’s and Christie’s, natural colored diamonds have become mainstream. Today, it is not uncommon for colored diamonds costing under $10,000 to sell at auction alongside stones that can cost a king’s ransom!
The catalyst for colored diamonds’ popularity coincided with the near-disastrous crash in the stock market 10 years ago. In a period where many lost 20% to 30% of their portfolio, the market for natural colored diamonds held its own, and prices for many colors increased in value! In fact, for the past two decades, through two recessions and a near-depression, auction and dealer pricing tells us that natural colored diamonds have not gone down in value once at the dealer level, and the best colored diamonds have doubled in value every five to seven years.
Natural colored diamonds are classified as a nonregistered asset. You do not have to provide a Social Security number to purchase a natural colored diamond. Ownership is completely private!
Nine of every 10 commercial lawsuits in the world occur in the United States. Privacy of ownership is an important consideration for many, allowing an individual to legally shield at least a portion of their asset base from prying third parties.
In contrast to stocks and commodities such as gold and silver, colored diamonds are relatively free of volatility. One of the biggest contributing factors to instability and volatility is market speculation and credit. As long as it is possible to control $100 worth of gold or stocks with $10, there will be market speculation and volatility. There is virtually no credit associated with the purchase of a colored diamond.
Jocelynn: Are you expecting the value of diamonds to continue to rise? Or what’s your outlook for the value of diamonds?
David: The asset value track record of natural colored diamonds is impressive. Through Tier 1 and 2 auction results and private client sales by dealers, we know that the best natural colored diamonds have doubled in value at the dealer level every five to seven years for more than two decades.
Diamond production volume worldwide peaked in 2006. Since then, there has been a marked decline in production. Investment-quality natural colored diamond production has remained constant at 10,000 to 12,000 carats per year. Worldwide demand has continued to increase each year, and it is this demand for a finite supply of colored diamonds that has contributed to the steady increase in prices.
Volatility and market speculation is going to be with us for some time, as is the government’s apparent insatiable desire to continue credit and budget deficit spending. The safe accumulation of wealth today means finding assets that avoid those pitfalls. For that reason alone the future for natural colored diamonds as a wealth accumulation vehicle continues to be promising.
Jocelynn: What percentage of your portfolio should be devoted to diamonds?
David: Portfolio percentage really depends on the strategic objectives of the purchaser. Assuming an average portfolio with dividend-oriented stocks and bonds, growth stocks, real estate, and commodities like gold and silver, we would recommend purchasers continue to balance their asset base.
In most cases no more than 10% to 15% of their assets should be in natural colored diamonds.
The high-end jewelry market purchases a considerable volume of natural colored diamonds for one-of-a-kind and signature pieces of jewelry for sale to its high-net-worth customer base. These purchases encompass all sizes and the complete color spectrum, from relatively inexpensive entry stones like yellow and brown to colored-diamond royalty including pink, purple, orange and green.
Jocelynn: What is the investment time frame? Are people holding a particular diamond for months or years before taking profits?
David: Natural colored diamonds are not a “day trading” mentality asset. We recommend, depending on the color and price, a hold period that optimizes the wealth accumulation potential of the purchase — anywhere from 12 to 18 months for entry-level positions, to three to five years for more serious acquisitions.
The past few years since the 2008 near-depression have been difficult for investors worldwide. Trust in many markets and institutions has been shaken to the core. Volatility, speculation and excessive credit by governments have surfaced as roadblocks to profitability, and they show no sign of abating in the future. The multibillion-dollar colored diamond market is an outlier to many of the problems that hamper investor confidence.
Jocelynn: I’m sure that buying the right diamond with your assistance is easy. But what about the exit strategy?
David: Colored diamonds are an established, stable buy/sell market where demand continues to exceed supply. Premier Diamond’s entire business plan is focused on our existing client base. We view our clients as potential partners who could very well be holding our future inventory for us. As demand increases worldwide, it is of critical importance for us to have a known supply of colored diamonds for future sales! And the only way we are going to have access to that future supply is if the holder of those stones is satisfied with the return they obtain for their asset!
Private-client-to-private-client sales account for the largest percentage of the business. Ten years ago, perhaps 90% of our colored diamonds were sourced in the diamond bourse from cutters and dealers. Today, as high as 60% of our sales are colored diamonds reacquired from our existing customers: clients who have traded up, or sales from a client’s estates or from clients who have otherwise exited the marketplace.
Aside from third-party sales to an auction house, jeweler or another dealer, we request first opportunity of refusal when a remarketing scenario presents itself. We offer a unique scenario where the vendor receives their compensation in a transaction before we complete a resale. It bears repeating here that the acquisition of a natural colored diamond is not a “day trade” situation. It requires fiscal discipline to optimize its wealth accumulation potential.
Jocelynn: David, thank you so much for this great information.
If you would like to learn more about Premier Diamond Group (North America) Ltd. and how natural colored diamonds may be able to help you preserve your wealth privately, please contact PDG at 416-679-9306.
Sr. Managing Editor, Sovereign Investor Daily