Internal Rate of Return On Diamonds and Jewelry: The Best Case
I found some historical sale prices of diamonds including for a 2 carat round in a solitaire mounting.
There are scenarios where you can make money on the sale of a diamond, but the rate of return is very low.
I was back in Kansas City this week helping my dad at his jewelry store in Overland Park, KS. We worked through various projects including sorting melee (small diamonds) and sending diamonds we have purchased off for GIA and EGLUSA certifications or diamond reports. I was also some of the latest custom jewelry work that he has including a beautiful new coin ring.
My family also purchased a new scanner with the hope of finally digitalizing old photos. Trying to find some classic photos of the family working at our various jewelry stores through the decades, I came across a catalog with this image and price guide.
During the 1960s and 1970s, the store my family owned was a catalog showroom. The catalog has a range of merchandise beyond jewelry. The catalog was an important sales and marketing tool that was distributed all over Missouri and Kansas. Folks from across the state scout what they wanted in the catalog then purchase the item either via mail order or in-person.
We still sell the exact same ring. I am not sure about the details back then, but the die struck solitaire has been our bestseller and most recommended ring for my entire life. Not surprisingly, this ring was featured on the front inside cover of the catalog. The diamond is meant to look suspended in air above the finger. The ring is minimal.
I also liked this page that I scanned because it showed prices. The catalog is from the summer of 1972. I know because the date is on another page. The price for a 2 carat round diamond set in a 14 karat gold solitaire was $3350 plus any applicable sales tax. My dad said the quality of the Coronation Series was very good. For $3350, you could get a H to I color and SI clarity 2 carat diamond. The cut of the diamond would not have been an ideal round American cut we prize today, but the more desirable cut for those days which had a larger table.
I was surprised by that price for a 2 carat diamond, and began doing some calculations. When I adjusted for inflation using the BLS.gov calculator, the price of a 2 carat diamond in 1972 was $19,175. Two carat diamonds are much more affordable today. I similar diamond today sells for $12,000.
I also calculated the internal rate of return. To do this, I used the SellMy.Jewelry Instant jewelry quote tool to determine the resale value of a 2 carat diamond set in a white gold solitaire. It returned a price of $5,817. Click to see a PDF detail of that quote.
My first reaction is whomever purchased this diamond ring and resold it can make a profit if he or she sold it 44 years later. I could not find a sales tax figure for 1972, so I ignore sales tax in these calculations. The total profit earned would be $2,467 or 73% of the total price. Neither of these are too bad. Considering most items purchased in the 1972 probably do not have any value now.
When I factor in the 44 years, the internal rate of return is 1.29%. This low figure demonstrates why diamonds and jewelry are not financial investments. Investing in Dow Jones Industrial Average over the same period yielded a return of 6.85%, a much higher margin.