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The failure of index-linked bond funds to perform post-Covid has really been bothering me. What’s the point of these things if they don’t actually protect you from inflation? Meanwhile, individual index-linked gilts – correctly used – are meant to be a proper inflation hedge. But is that true?

Can we empirically prove individual linkers1 worked when inflation let rip?

First, some context. Our favoured linker fund holding at House Monevator prior to the post-pandemic price surge was a short-duration model. That’s because short-duration index-linked fund returns are more likely to reflect their bonds’ inflation ratchets, and are less prone to price convulsions triggered by rocketing interest rates.

Longer duration linker funds, meanwhile, got hammered in 2022 because they’re more vulnerable to rising interest rates. When rates soared, prices dropped so hard and fast that their bond’s inflation-adjustment element was rendered as effective as wellies in a tsunami.

Hopefully you at least avoided that fate…

The weakest link(ers)

So it’s October 2021, and you’re duly positioned on the coastline, scanning the horizon for inflation, with ample resources invested in short-duration linker bond fund units.

Here’s how our defences performed once the inflation Kaiju was unleashed:

Inflation versus short-duration linker fund

Index-linked bond fund is the GISG ETF. Data from JustETF and ONS. February 2025. NB. The linker fund trend line was corrected on 18 Feb 2025.

Oh. As that calm-voiced announcer-of-doom on Grandstand might have intoned: “Inflation One, Passive Investing Defence Force, Nil.”

Or, in numbers more appropriate to an investing article, the annualised returns from October 2021 (when inflation lifted off) to year-end 2024 are:

  • UK CPI inflation: 5.9%
  • Short-duration linker fund: 0.6%

Note: all returns in this article are nominal, dividends reinvested.

In other words, this linker fund fell far behind rising inflation and posted real-terms losses over the period.

Right-ho. So that was a learning curve.

Since then I’ve put a lot of time into researching individual index-linked gilts, commodities, gold and money market funds – all assets fancied as offering some degree of inflation protection.

The most reliable should be individual index-linked gilts. After all, they come with UK inflation-suppression built-in. Put your cash in, and it pops out at maturity, with a price-adjusted enamel on top. Purchasing power protected!

All you must do is not sell your linkers before maturity. Buying-and-holding prevents the kind of losses bond funds are vulnerable to realising. Funds’ constant duration mandates make them forced sellers when bond prices are down.

Excelente! But one thing was still nagging me. Did individual linkers actually deliver on their inflation-hedging promise during the recent price spiral?

Inflation versus individual index-linked gilts

To answer that question, I simulated the performance of a small portfolio of individual index-linked gilts using price and dividend data from October 2021 to year-end 2024.

Then I pitted the individual linkers against CPI inflation and GISG, the short-duration linker ETF discussed above.

Here’s the chart:

Data from JustETF, Tradeweb and ONS. February 2025. NB. The linker fund trend line was corrected on 18 Feb 2025.

Okay, the individual linkers (pink line) did better than the fund but they still lagged inflation. The annualised return numbers are:

  • Inflation: 5.9%
  • Individual linkers: 4.1%
  • Linker fund: 0.6%

That’s still an unhealthy gap as far as I’m concerned – like buying a peep-hole bulletproof vest.

Proving a negative

Why did the individual index-linked gilts lose money versus inflation?

Because way back in 2021 they were saddled with negative yields. That is, the buy-in price for linkers was so high that their remaining cashflows were guaranteed to sock you with a loss, if you held them until maturity.

The best a linker portfolio held to maturity could do was limit the damage against inflation. But that negative yield drag meant it was always going to underperform.

But that’s a historical problem. Today index-linked gilts are priced on positive yields, so they can keep pace with inflation while sweetening the deal with real-return chocolate sprinkles on top.

The other point worth making is that my clutch of individual linkers were still susceptible to the downward price lurches that afflicted constant-duration bond funds.

The chart above shows a big dip in late 2022 when prices fell as interest rates took a hike, for instance. Think Trussonomics and other traumas of the era.

These are only paper losses to the individual linker investor who holds until maturity or death. Hold fast and eventually your bond’s price will return to meet its face value on redemption day (plus inflation-matching bonus in the case of linkers.)

Meanwhile, the bond fund is flogging off its securities all the time – profiting when prices rise and losing when they fall. That was a very bad design feature during the post-pandemic inflation shock.

My individual linkers’ price dip was smaller than the fund’s largely because I could choose to populate my modelled portfolio with shorter-duration bonds. Short bonds are less affected by interest rate gyrations, as discussed.

Still, I wondered if I was being unfair to the fund. After all, linker funds previously gained in 2020 as money flooded into the asset class.

One last chance for the linker fund

The next chart shows annual returns including 2020, the year before inflation ran hot.

Index-linked bond fund is Royal London Short Duration Global Index Linked M – GBP hedged.2 Data from Royal London, Tradeweb and ONS. February 2025.

Yep, 2020 was a good year for the linker fund. Interest rates fell and its price rose giving it a healthy lead over inflation, and the individual linkers. (Remember the fund profits by selling bonds as prices rise. Meanwhile, the longer average duration of the fund’s holdings meant that it enjoyed a stronger bounce versus my battery of gilts.)

There’s not much to see in 2021 – bar inflation engorging itself – but 2022 is the fund’s annus horribilis. It’s down 5.4% at face value and 16% in real terms. (Horrifyingly, the long-duration UK linker ETF, INXG, was down 45% in real terms that same year.)

Overall, incorporating 2020 does improve the linker fund’s showing. The annualised returns for the five year period 2020 – 2024 are:

  • Inflation: 4.6%
  • Individual linkers: 3.7%
  • Linker fund: 2.2%

It’s still not enough. In my view, the best linker funds available were a fail when inflation actually came calling. I personally held both GISG and the Royal London fund at the time and became deeply disillusioned with them.

All change

The issue driving all this drama was that as inflation accelerated, investors demanded a higher real yield for holding bonds.

The average yield of the simulated linker portfolio above was -4.2% in October 2021. It had risen to 0.5% by December 2024.

When bond yields go up, prices go down. And that exposes the fatal flaw in linker fund design from an inflation-hedger’s perspective – the available products are always selling and even the short duration versions aren’t short enough.

Perhaps yields won’t surge as violently in a future inflationary episode.

But I don’t see why I’d take the risk when I can now buy individual index-linked gilts on positive real yields, hold them to maturity, and neutralise that problem. Individual linkers aren’t going to be slow-punctured by negative yields from here.

So I’ve ditched my index-linked bond funds. They were better against inflation than the equivalent nominal bond funds. But that’s not saying much.

There are other places to store your money so I’ll extend this comparison to the most interesting and accessible of those alternative assets in the next post.

Take it steady,

The Accumulator

Bonus appendix

If you’re interested in buying individual index-linked gilts then these pieces will help:

Are individual linkers better than linker funds?

At hedging inflation yes. At being more profitable, no.

For the avoidance of doubt, I’m not saying that a portfolio of individual index-linked bonds can magick up more return than a bond fund containing precisely the same securities.

What I am saying is that the individual linker portfolio is the superior inflation hedge when each bond is held to maturity. The design of constant maturity bond funds mitigates against matching inflation in the short-term, but should provide a similar overall return in the long run.

If you don’t care about hedging inflation then there’s nothing to gain by swapping your bond funds for a rolling linker ladder.

Fixed duration index-linked gilt funds could also hedge inflation effectively, but they don’t exist.

UK inflation versus globalised inflation

It’s worth mentioning that individual index-linked gilts are linked to UK RPI inflation (switching to CPIH in 2030). RPI was higher than CPI during the period so that’s helped my simulated portfolio claw back some ground against CPI.

By contrast, the short-duration linker ETF, GISG, currently allocates 14% of its portfolio to index-linked gilts. The rest is composed of other developed market, CPI-linked, government bonds: 56% US, 10% France, 7% Italy and so on. The point being that these other linkers don’t protect against UK inflation, though they do match related measures i.e. inflation in highly interconnected, peer economies.

As it was, inflation in these other countries was typically less than the UK’s post-pandemic. I haven’t attempted to calculate what difference this made but I think it’s another reason to favour an index-linked gilt investment product when you can get it.

Individual linker portfolio simulation

I didn’t want to bog the main piece down with a wander through the weeds (well, more than I already have) but for the record I’ll now show my workings.

The individual linker portfolio was constructed from three index-linked gilts, TIDM codes: T22, TR24, and TR26. Each gilt matures in the year indicated by the numbers in the code.

When each gilt matures, the redemption payment is reinvested into the next shortest gilt. For example, T22 is reinvested into TR24. I did not include trading costs for reinvesting dividends or redemption monies.

Relatedly, the performance figures for GISG and the Royal London fund are slightly affected by their OCFs of 0.2% and 0.27% respectively. But I don’t think these charges made a meaningful difference to the comparison over such a short time-period. The differential is too big to be explained by fund fees.

  1. Index-linked bonds are colloquially known as ‘linkers’. []
  2. Full year data wasn’t available for GISG in 2020 or 2021 as it launched April 2021. However, only annual data is available for the Royal London fund. []
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UK dividend tax explained

Dividends are taxed more generously than savings interest.

For years now, dividend tax rates have been increasing. In addition investors have been hit with a massive reduction in the already miserly tax-free dividend allowance.

Let’s run through the current dividend tax rates and allowances. We’ll then consider how we got here, and what you can do about it.

Dividend tax rates and allowances

The rate of tax you’ll pay on your dividends depends on your income tax band.

UK dividend tax rates are currently:

  • Basic-rate taxpayers: 8.75%
  • Higher-rate taxpayers: 33.75%
  • Additional-rate taxpayers: 39.35%

But note that depending on your total earnings – and where it comes from – you could pay tax at more than one rate on your income.

These higher dividend tax rates went into effect on 6 April 2022. At that point the tax rate for each band was hiked by 1.25 percentage points.

A pledge to reverse the hike was made with the Mini Budget of 2022. But this was scrapped by replacement chancellor Jeremy Hunt when he took office.

I hope you’re keeping notes at the back.

We’re talking about dividends paid outside of tax shelters. Dividends earned within ISAs and pensions are ignored with respect to tax. Adding up your dividends for your tax return? Don’t include dividends paid in ISAs or pensions. Forget about them when it comes to tax. (Enjoy them for getting rich.)

The tax-free dividend allowance 2024 to 2025 and beyond

As of 6 April 2024, the annual tax-free dividend allowance was halved to just £500.

Dividends you receive within the tax-free dividend allowance are not taxed. But breach the allowance and the rest is taxed according to your income tax band.

Like other tax allowances such as the personal allowance for income tax, the dividend allowance runs over the tax year. (From 6 April to 5 April the next year).

The £500 dividend allowance means you only automatically escape dividend tax on the first £500 of dividend income.

This level of dividend is tax-free, irrespective of how much non-dividend income you earn and your tax bracket.

(Incidentally, if you heard that these allowances used to be much more generous, you’re right. They have been slashed over the past few years. More on that below.)

What are dividends?

Dividends are cash payouts made by companies:

  • You may be paid dividends by shares listed on the stock market or by funds that own them.
  • You might also be paid dividends from your own limited company, as part of your remuneration.

Dividend tax only comes into the picture on dividends you receive outside of a tax shelter.

Using ISAs and pensions is key to shielding your income-generating assets from tax for the long-term.

What tax rate will you pay on your UK dividends?

If your dividend income exceeds the tax-free dividend allowance, you’ll pay tax on the excess.

This liability must be declared and paid through your annual self-assessment tax return.

For example, if you received £6,000 in dividends, then tax is potentially charged on £5,500 of it. (£6,000 minus the £500 tax-free dividend allowance).

As we said, the rate you’ll pay depends on which tax bracket your dividend income falls into.

Beware of being bounced into a higher tax band

If you own dividend-paying shares outside of an ISA or pension, then the dividends may add substantially to your total income. Perhaps enough to push you into a higher tax bracket.

To avoid taxes reducing your returns you should invest within ISAs or pensions.

If you own funds outside of tax shelters, you could also owe tax on reinvested dividends.

Choosing accumulation funds doesn’t spare you the tax rod – unless they’re safely bunkered in your tax shelters.

Watch out for withholding tax on dividends

If you’re paid dividends from overseas companies, you may be charged tax on them twice. Once by the tax authorities where the company is based, and again by Her Maj’s finest in the UK.

You may even pay this withholding tax on foreign dividends held within an ISA or pension.

However there are reciprocal tax treaties between the UK and other countries. These can at least reduce the total amount of dividend tax you pay.

Your broker should take care of this for you.

Some territories do not charge withholding tax on dividends received in a UK pension. The US is the most notable one. (This doesn’t apply to ISAs. Choose where you shelter your US shares accordingly.)

Again, make sure your platform is paying you any US dividends in your pension without any tax having been charged.

It can all get a bit fiddly. See our article on withholding tax.

Why was the old dividend tax system changed?

Then-chancellor George Osborne revamped UK dividend taxation in the Summer Budget of 2015.

He apparently wanted to remove the incentive for people to set themselves up as Limited Companies and then use dividends as a more tax-efficient way to get paid, compared to salaries.

Osborne also said the changes enabled him to reduce the rate of corporation tax.

But whatever his intentions, as we’ve seen today’s regime applies equally to dividends received from ordinary shares.

Even worse, the initially fairly-generous dividend allowance of £5,000 – designed to avoid small shareholders being taxed on legacy dividend-paying portfolios – is now just £500.

Admittedly, most small investors have not been hit by the changes. That’s because most of us hold our shares within ISAs and pensions these days.

However there are exceptions.

Small business owners paid a dividend by their limited companies now pay more tax. Salary-sized dividends chew straight through today’s tiny dividend allowance.

There also exists a dwindling cohort of older investors who built up a big portfolio of income shares outside of ISAs and pensions. They’re paying far more tax too.

Always use your tax shelters

For years I urged these older dividend investors to move as much money as possible into ISAs. They could do this by defusing gains to fund their ISAs, for instance.

The ISA allowance is a use-it-or-lose-it affair. You must build up your total capacity over many years.

Yet inexplicably to me, some argued – even in the Monevator comments – that there was no point.

Dividends were not taxed until you hit the higher-rate band, they said. So why bother?

That was true under the old system. And maybe there was a harder choice to be made if you also had massive cash savings, because of the competition as to how to divvy up your annual ISA allowance.

But the truth is taxes on dividends were always liable to change. And eventually they did.

At that point, the people who had declined to move some or all of their portfolios into ISAs – just to save a few quid – were hit with large tax bills.

I hate to say I told you so. (Truly – I write a blog to help people.)

ISA sheltering costs nothing. Even back then there was at most a trivial cost difference with an ISA versus a general account. Nowadays there’s usually none.

Get any non-sheltered portfolios into an ISA (and/or a SIPP) as soon as possible, if you can. Not just to avoid dividend tax, but also to shelter from capital gains taxes and other future regulatory changes.

Note: I’ve removed talk about the old way UK dividends were taxed in the reader comments to reduce confusion. We have to let go! But the discussion may still refer to old (or incorrect) dividend tax rates and allowances. Please check the dates if unsure.

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Weekend reading: No spring in my step

Our Weekend Reading logo

What caught my eye this week.

Has winter dragged on for you too, or is it just me? I asked ChatGPT if the weather has been unusually cold and it waffled on for a bit with some anecdotes and then said I should check with the BBC.

Which seemed pretty unhelpful, but then I thought it’s also scarily similar to what you’d actually hear if you asked your nearest mate.

Anyway it has been especially chilly for the past few days. January saw the UK’s coldest night since 2015. Meanwhile on renewable energy investor forums I see debates about whether the slowdown in the North Atlantic conveyor has caused the wind to not blow as much as was forecasted. Which could explain why I’ve worn gloves every day since November.

But I also know I’m prone to Seasonally Affected Depression.

Every January I think I’ve dodged it and then it kicks in – well, about now – and I find myself reading articles about emigrating to Australia.

And yet crazed with cold fever I also ran these numbers on living on a canal boat. A definite case of jumping out of the refrigerator and into the icebox.

Chill brains

A big problem with emotions is how they skew judgement.

For instance I just saw this story about the Met police objecting to a new jazz club in Covent Garden on the grounds that drunk patrons might get mugged on the way home. It seemed ridiculous and I despaired at what London has become since I first arrived in the early-1990s.

But actually…safer is one thing it has become. So am I properly weighting that as I read the story against what mostly appears to me to be the enfeebling of London’s citizens and its nightlife?

Politics is where this emotional distortion effect looms largest.

Perhaps you’ve read in my previous Weekend Reading links how someone’s perceptions instantly reverse in the US depending on whether their favoured candidate is in the White House? So far-reaching is Trump’s chaos theory politics that I don’t doubt it’s affecting me too.

Then again there’s enough to be dispirited about closer to home.

Not least that despite demonstrably hobbling the UK economy – to the tune of £1,750 per person, annually – with his economically insensible Brexit, Nigel Farage is back and doling out his sounds-about-right slop to the same credulous faction who fell for it last time.

We’re told his resurgent Reform party could even dethrone the Conservatives.

Who knows? Though nobody could do a better job of unseating the Tory party than the Tory party managed over the past decade.

The Reform party this week said it would tax renewable energy, reflecting the party leadership’s long history of climate denial. Soon British policy could be driven by the motiviations of an angry middle-aged man in a near-empty pub on a Wednesday afternoon shouting at the television in the corner.

Elsewhere The Atlantic is reflecting on how Covid deniers won – politically, not scientifically – and Politico listed the 37 ways the supposedly disavowed ‘Project 2025’ has already shown up in Trump’s executive orders.

It’s depressing.

Cold comfort

But maybe you’re depressed about me bringing politics to your otherwise favourite financial resource?

Well I have some sympathy, believe it or not.

Over the past six months I’ve grown increasingly irritated at how one of my favourite small-cap share pundits has spent years bemoaning British doomsters as unpatriotic while he dismisses the idea that Brexit had any impact on the UK economy – even as he repeatedly sees an economic recovery around the corner and then is mystified when we instead limp along in semi-stagflation.

Stick to shares, I mutter – obviously in large part because I disagree with him.

Perhaps as you did with me above.

Naturally I think I’m even-handed. For example I flagged up the failings I saw in Rachel Reeves’ budget.

But then I would think that, wouldn’t I?

We all believe we’re above-average drivers.

The big political currents underway seem too important to avoid any mention of on my own website, even if only from a narrow financial perspective – which I do mostly try to stick to. It’s a highfalutin thing to say, but it almost feels irresponsible to look the other way when I have a platform.

Yet I really can see the sense in Jaren Dillan’s perspective at We’re Gonna Get Those Bastards, when he argues it’s okay to ignore politics:

Do you want to be right, or do you want to be happy?

Let’s say you choose the former. Good luck? Maybe get back to me in four years with a list of what you actually accomplished.

Yes, I am suggesting that we are all impotent. Yes, I am suggesting that one person can’t make a difference. Yes, I am just that cynical.

But deep down—do you disagree with me? Do you think that your rage-posting on social media is going to make a difference? Not only will it not make a difference, it is counterproductive, because, chances are, you’re turning people off in the process.

I know he’s probably right. Who has changed their mind about Brexit, despite its non-existent achievements? The polls have mostly turned against it only because so many of its supporters have died.

Oh well, at least my portfolio is up nicely so far in 2025.

And we’re inching towards spring…surely?

Have a great weekend!

p.s. Moguls: I didn’t get a chance to send out the Monevator merchandise email this week – so don’t worry, you haven’t missed out on the fashion event of the century. The next two to three days for sure!

[continue reading…]

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Lab-grown diamonds: should you buy them?

Illustration of a diamond engagement ring

Imagine a scenario. It’s Valentine’s Day. You’re contemplating popping the question to the partner of your dreams, and you want to do it traditionally, with all the bells and whistles. 

But you’re also a very budget-conscious individual – note how diplomatically I avoided the word ‘cheapskate’ – and the prices of diamond rings in the windows of High Street jewellers make your knees go all wobbly. 

You’re currently nursing a coffee in Greggs (Starbucks being too pricey) and ripping your paper napkin into shreds as you ponder the situation.

Is there a way to make your Significant Other feel valued while also getting value for money?

Diamonds are forever

One option is to go vintage, buying a pre-loved (or pre-divorced) engagement ring from a pawn shop or a private seller.

Or if you’re really lucky maybe there’s an old family ring you could use.

Both are good options – but as with any second-hand purchases, it’s a ‘caveat emptor’ situation. 

Vintage rings may be difficult to resize. Typically you can only make a ring two sizes bigger without causing problems with the set of the stone. And people today have chunkier fingers than they did a hundred years ago. So usually you will have to resize an old ring. 

Older diamond rings may have cloudy stones, too. They tend to be less sparkly anyway because yesteryear’s cuts had fewer facets. That doesn’t always fit with modern tastes.

Also old diamonds rarely come with a certificate of authenticity. You have to know what you’re doing – or have access to some pretty sound advice – so that you don’t get sold an imitation. 

Bear in mind, too, that your spouse-to-be may not actually like Great-Aunt Edna’s 1970’s bling. Check before you pass on that heirloom!

But what if you don’t have a family safety deposit box stuffed with precious stones, and you don’t fancy your chances on the second-hand market?

Well, leaping into that gap in the market with a grand “tah-dah!” have come lab-grown diamonds.

What is a lab-grown diamond?

If you don’t know about lab-grown diamonds (sometimes called ‘created diamonds’) then you’re not alone.

Nobody in my little corner of the world seems to have come across them yet. But in other places they’re already ubiquitous. 

Lab-grown diamonds offer an alternative to mined diamonds, and it’s an alternative that has taken off in recent years. The result has been an unprecedented shake-up of the diamond industry. 

You see, a lab-grown diamond is literally indistinguishable from a traditional diamond by anyone but a jeweller with the specialist equipment needed to read the tiny ‘LG’ symbol inscribed on its base. 

Lab-grown diamonds are classified in the same way as mined diamonds. They’re graded in the same way. They offer the same cuts and level of sparkle.

That’s all because lab-grown diamonds are diamonds.

As Sherwood reports:

If you buy a knock-off Rolex on Canal Street in New York, it’s not really a Rolex. It’s lighter, the materials are cheap, and anyone with a Rolex can instantly tell it’s fake.

But a lab-grown diamond has the same chemical composition, physical properties, and optical properties of ‘natural’ diamonds. The only difference is their source.

Basically, the only force keeping so-called natural diamonds’ prices up is consumer perception…

Best of all – and crucially for our hypothetical cheapskate – lab-grown diamonds are a lot less pricey.

No pressure, no lab-grown diamonds

Lab-grown diamonds are cheaper because they’ve passed through fewer hands than mined diamonds – and perhaps because fewer people have been killed to get them out of the ground. Which is nice. 

Marketing materials sometimes refer to them as conflict-free diamonds or ethical diamonds. That’s because unlike many mined diamonds, they don’t come from a war zone and haven’t been used to finance armed conflicts. 

You can therefore feel good about buying a lab-grown diamond, if that’s the sort of thing that matters to you.

Don’t get carried away with the idealism, though. Lab-grown diamonds are made in factories which consume an awful lot of power. It doesn’t always come from sustainable sources

Indeed that word ‘ethical’ starts to look a bit flimsy if you examine it too closely.

(Affordable) diamonds are a girl’s best friend

And now the money shot… lab diamonds typically cost less than a quarter of the retail price of mined diamonds (in the UK at least). 

Great! Where do you go to get one?

Well, try the Internet for starters.

There’s been a boom over the last couple of years in online retailers selling the things. They’ll enable you to custom make your diamond ring down to the style of setting, the type of metal, the shape of the stone, and lots of other elements. You can tinker around with an online ring designer tool, adjust carat size, diamond colour, width of band, and do all sorts of other fiddling until you have something that matches your budget and the style that you and your partner favour. 

Some of these retailers even have high street storefronts. There you can make an appointment to check out your chosen styles in person.

And it’s worth checking in with these branches anyway – because sometimes they’ll have a heavily discounted ring that someone ordered but then brought back.

“Usually”, I was told by a salesperson in a hushed voice, looking round to make sure there were no fragile-looking chaps behind her, “it’s because she said ‘no’.”

Diamond in the rough

I found the lab-grown salespeople to be great, probably because they understand that their customers are working to a budget. They’ll clue you in on all the corners you can legitimately cut. 

For instance, you’ll pay more for a diamond with a colour graded towards the start of the alphabet – but there are diminishing returns:

  • D is the most prized colourless diamond grade. It’s also the most expensive.
  • Anything around F or G is almost imperceptibly coloured, so for most people there’s no point paying extra for a D or even an E.
  • Diamonds graded around I or J are noticeably yellower. But increasingly that’s becoming quite fashionable, so you can bag a bargain if you like coloured stones.

The same goes for clarity. There’s no need to pay extra for the top level of clarity unless you’re going to be looking at your ring under a microscope.

Be careful cutting corners on the metal though. 

You can save a lot by choosing a 9k gold band (rather than 18k or platinum) but be aware the white gold variants tend to be rhodium-plated to make the ring extra shiny. When the rhodium wears off – in blotches – you’ll have to send away the ring to be re-plated. That’s likely to be at least once a year, at around £50-£70 a time.

Over a lifetime, it’ll mount up. This is one saving that could prove to be false economy.

Should you become an investor in diamonds?

No. Please don’t. 

I come from a town where ‘investment jewellery’ is alive and well as an asset class. Plenty of folks around here are still sporting sovereign rings – which, incidentally, offer both a portable investment and an edge in a fist fight.

So it goes against my upbringing to say this – but don’t invest in diamonds unless you really know what you’re doing. They are a notoriously tricky investment, for all kinds of reasons.

One reason is that diamonds are fundamentally non-fungible. Diamonds come in a bewildering variety of grades, colours, inclusions and shapes, and the labs which categorise them use different standards. Hence it’s necessary to value every stone on its own merits.

Some people compare diamond buying to property buying, with similar risks and difficulties, rather than to investing in gold, say, which can be traded more easily.

An insider speaking to the Robb Report put it well:

“Go buy a natural diamond engagement ring on 47th Street,” Ryan Shearman, of Aether Diamonds, says.

“Walk across the street and try and sell it. Tell me how much value you recoup. It’s not very far off from an automobile in that case. So if you’re not looking at your car as an investment, you shouldn’t look at your engagement ring as an investment. The value is what you make of it.”

Diamond hard

Diamond rings lose value over time, unless you’ve managed to get an outstanding deal. This has been true of mined diamonds for a long time and it’s certainly true of lab-grown diamonds now. They’re not a smart long-term investment.

The exception is extremely expensive or extremely rare stones. They are apparently a fairly decent place for the super-rich to park their money. But I don’t know the ins and outs myself, since I haven’t been able to find a billionaire willing to chat to me about his diamond stash.

For regular folks though, diamonds won’t rattle the capital gains tax cage anytime soon.

The diamond market is particularly unpredictable right now. Prices have dropped across the board, mostly thanks to the rise of the lab-grown diamond. Nobody knows how it’s going to shake out.

Maybe lab-grown will be a fad that fades? Perhaps the value of mined diamonds will plummet permanently? Or it could be that everything will stabilise and there’ll be a comfortable co-existence.

I don’t know. And neither, it seems, does anybody else.

Is diamond jewellery still valuable?

The manufacturing of diamonds opens up questions as to where the value of a diamond really lies.

Is it in the chemical composition? In the millions of years the diamond has spent beneath the ground, or in the labour involved in finding it? Is it in the rarity?

Or – my personal view – is a diamond’s value determined by its twinkliness?

Different people will give you different answers, depending on what they care about – and on how much they’ve invested in the diamond industry. An unbiased viewpoint is even rarer than a real diamond.

The interesting thing is that customers are now getting to decide where they want to assign the value for themselves. And I think that’s quite good fun.

But to answer the question – yes, diamonds are still valuable, for the time being anyway. That’s because their value as jewellery isn’t necessarily intrinsic to the actual properties of a given stone.

A lab-grown diamond in a rhinestone world

I mean, I’ve known a few people who buy themselves diamonds – but not many.

Diamonds are far more often a special gift to a special person for a special occasion, usually tied to a major life event.

And I’m not just talking about engagements. Diamonds are traditionally a milestone marker.  Anniversaries, births, important birthdays, graduations – even deaths (don’t look up ‘cremation diamonds’ unless you definitely want to know).

Sure, with my practical hat on there are more sensible things you could do with your money to celebrate a special occasion.

You could buy shares for your loved one or contribute to their pension. You could buy them a stack of premium bonds and cross your fingers.

But I’m not wearing my practical hat right now.

I’m wearing an engagement ring.

And when my new fiancé and I walked past the window of a traditional high street jeweller’s shop yesterday, we saw an almost identical ring to mine going for an eye-watering 15-times the price.

So now we’re smug as well as happy!

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