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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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Investing in infrastructure [Members]

Given we’re all up to our eyeballs in US tech stocks – waiting to see whether artificial super-intelligence is just around the corner, and if so whether it will cure cancer or exterminate us – it’s hard to believe that only a few years ago people paid up to invest in toll roads, hospitals, and *checks notes* government contracts to collect the rubbish.

Too young or drunk on recency bias to believe me?

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Weekend Reading: surely not cash ISAs?

Weekend Reading: surely not cash ISAs? post image

What caught my eye this week.

I don’t know about you, but I really miss that six-month spell last year when we all fretted about what was going to happen to pension allowances, inheritance tax, AIM shares, and all the rest of it.

Everyone knows financial planning is dull as dishwater. So why not living things up by throwing all the rules up into the air every few years?

That way we won’t get too complacent.

Instead: all the fun of the power-ups and banana skins in Mario Kart. Anyone might win – or lose!

Well rejoice because according to the Financial Times and This Is Money, financial firms have been lobbying the government to do away with – or at least severely do-in – the humble cash ISA.

The Financial Times reports that:

During a meeting last month, City firms lobbied chancellor Rachel Reeves to scale back incentives for cash Isas, arguing that the money would be put to better use if it were invested in the stock market.

Le sigh.

Cash cachet

Happily – though not exactly surprisingly, given it should be blindingly obvious to anyone – both articles found experts to defend the virtues of cash ISAs.

After all, here’s a rare popular financial product that anyone can understand.

Rates are now reasonable again. And the ISA shielding means there’s no returns lost to tax or time lost to paperwork.

This is what success looks like, and you can see why it turns the City green with envy:

Source: HMRC

Of course I know returns from equities and even bonds will very likely trounce cash over longer timeframes.

And ever since 2007 Monevator has been trying to help people understand how to invest more productively.

I also agree that boosting the flow of capital going into the London Stock Exchange would be helpful for Great Britain PLC.

But getting rid of one of the very few financial products that the average person is comfortable with – and upsetting the applecart yet again – is not a good way to encourage more investment.

How about instead educating people from school age about regular saving and compound interest, and what it might mean for their futures?

Or how about just not changing the rules on the whim of every other Chancellor, and instead letting us properly plan for the long-term?

Heck, how about politicians not inflict years of political chaos and ultimately economically damaging policies on the British public?

That way instead of flirting with recession every few quarters (see the links below) maybe we’d have enjoyed years of proper GDP growth and even some of the full-throated animal spirits that the Americans have seen.

And by the same token, maybe don’t bang on about ‘going for growth’ and then immediately inflict an employment-penalising kick in the arse for business as soon as your first budget comes around?

(Okay, and it’d be nice if we could re-roll the cosmic dice so we don’t have a pandemic and a war in quick succession next time.)

Honestly, for the average financially-confused person out there, just hoarding cash in the face of all this uncertainty seems very understandable to me.

Cash is not trash

If something must be done about this ‘unproductive’ cash – and to re-iterate, I’d prefer they just left well alone for a few decades – then I’d vote for carrots rather than sticks.

Let’s get rid of the ridiculous stamp duty on UK traded shares for starters. And scrap that pernickety £1.50 PTM levy on trades over £10,000 while we’re at it.

But something as fundamental as the cash ISA shouldn’t be up for debate.

Politicians who look forward to generous defined benefit retirement schemes need to understand that normal people in the brave new-ish world of defined contribution pensions face what’s notoriously the hardest problem in finance.

Given that is already a lot to cope with, some lasting stability might go a long way to encourage more learning about investing – and eventually coax more money out of cash and into other assets.

Get a real job

To be fair to her, Rachel Reeves doesn’t appear to be the instigator of any of this cash ISA dissing – though This Is Money does note ominously that:

The Chancellor did not dismiss the idea, according to a senior banker.

Really? Okay, then I’ll make the decision for her.

Dismiss it: we don’t need any more unforced errors.

Get on with sorting out planning or transport or a proper energy policy or anything big and bold that could actually improve our future writ large, rather than more fiddling with how we move this or that pile of the dwindling coins we’ve already got.

Cash ISAs are a solution to a problem – not the other way around.

Lord make my readers frugal, but not yet

On a totally unrelated note, ten years after I first sketched out a couple of ideas for ‘quirky’ investing-related T-shirts, we’ve finally got some Monevator merch coming your way!

Yes, you’ll soon be able to wear your love affair with investing on your sleeve – and in any colour too, so long as it’s Monevator-style black and white.

Got too much cash hoarded in your ISA? Then why not live large and spend a few tenners from it before Rachel comes a-calling…

This Shopify – um – shop of ours will also feature pointers to our favourite investing books on Amazon. Because you’ve got to eat your greens too, you know.

Anyway I’m going to rollout access to the shop in stages, so we don’t get overwhelmed* like in those Black Friday stampede videos that used to go viral a few years ago.

(What happened to those? I guess it’s all just standard behaviour nowadays?)

Moguls first – please watch your inboxes over the next few days for your teaser discount code!

And have a great weekend.

* I wish!

[continue reading…]

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The benefits of living mortgage free

The benefits of living mortgage free post image

Becoming mortgage free is not just a practical goal to be sensibly evaluated as part of your wider investing strategy – although it is that for sure.

There’s an emotional component to getting rid of your mortgage, too. And we shouldn’t ignore our emotions because they hugely influence our ability to stick to our plans.

Feelings matter!

Mortgages and make believe

It’s always seemed to me that mortgages are deeply sentimental, in a way that other financial products are not. They’re like the Hallmark movies of the financial world.

Think about it.

Firstly, there’s the hackneyed but heart-warming narrative…

A young couple in love are chasing their dream to own their own home. They struggle to pull together a deposit. The bank agrees to help them. There is champagne (or cheap plonk). They sleep on the floor until their furniture arrives. 

Soon they’re ripping wallpaper samples off the rolls at B&Q and picking up those little paint cards with the different coloured strips. The IKEA catalogue is suddenly intensely fascinating.

It’s not all plain sailing, obviously. Our couple have their struggles. Tight budgets and problem neighbours. Arguments about the damp patch on the kitchen ceiling.

A dog joins the cast, and then a couple of children. There are barbecues in the garden.

And all the while they’re paying off that mortgage.

At last – usually when they’re much older and the kids have flown the nest and the dog is buried under the barbecue – their mortgage comes to an end, as all good things must. 

The end credits roll, and we see them sailing away into the sunset on a Saga cruise.

Living the dream

Being deeply gullible, I bought into all of that.

I remember going to get my first mortgage, and sitting in a little office in the shopping centre branch of a building society with a woman wearing a name tag and a stern expression.

I was 27 and completely petrified. 

Would I make an unfunny joke – likely – and accidentally destroy my chances of getting a mortgage? 

Might my asthma – an occasional cough – be categorised as potentially fatal for mortgage-gaining purposes?

Would my employment history – patchy – show that I shouldn’t be trusted with proper money? 

When my application was actually approved, it felt like I’d been accepted as a Real Grown-Up.

I was thrilled. So I agreed to everything: payment protection, life insurance, you name it. Because that was what Grown-Ups did.

Shortly afterwards of course I went through the enormous reams of paperwork and realised what I’d done – and promptly cancelled most of what I’d been talked into.

But nevertheless, for a while having a mortgage was a great thing. Because having a mortgage allowed me to buy a house, and that was very exciting indeed.

True, it was a run-down terraced house opposite a patch of waste ground. Not exactly white-picket-fence material

But as far as I was concerned I was Living The Dream.

Questioning the dream

It only dawned on me later that a mortgage was still a debt. 

I’d never thought of it like that before.

A mortgage was a necessary bill, surely? You paid a mortgage or you paid rent. That was how things worked. And at least with a mortgage, you got to have a house that was yours.

Right?

Well, sort of.

Unless the bank took it back.

The more I thought of about it, the more it bothered me. 

Debt nightmares

The reality was that I was in debt – to the tune of many thousands of pounds.

I would never even consider that in any other situation. But I’d just blithely skipped into my mortgage.

I’d even thanked the bank for saddling me with a giant stonking debt!

What was wrong with me?

I read up. I learned that there was Good Debt and there was Bad Debt, and that mortgages fell into the category of Good Debt. 

But knowing that didn’t help much. 

I ran the numbers – easier to do nowadays with online calculators – to see how much I was going to pay over a 25-year term on the money that I’d borrowed. 

The answer was a mind-boggling amount.

Rejecting the dream

Within a year of moving in and mortgaging up, I was furious about the whole situation. 

I didn’t know anything back then about FIRE or investing. I hadn’t found Monevator and I didn’t realise that financial independence was an achievable thing. 

But I still felt cheated because the world hadn’t properly explained to me that I was digging a hole that would take me most of my working life to climb out of.

It didn’t help that my parents had recently had a brush with the endowment mortgage drama, either. As a consequence I’d begun to see mortgages not as a necessary part of life, but rather a trap for the unwary.

So I decided to haul myself out of the hole.

Fortunately, when my mortgage was set up I had opted for a one that allowed me to make limited monthly overpayments.

I remember that it was presented to me in terms of a saving scheme – that if I built up a surplus through overpayments, I could tap that for a payment holiday at some point in the future.

Going back through the paperwork though, I found that overpayments could be used to reduce the term of the mortgage. Over time, this could slash the total interest that I’d be charged.

Just like that, I was off.

Mortgage repayment illustration

Let’s say you have a £200,000 repayment mortgage charging 5% with 25 years left to run on the clock.

According to Monevator’s mortgage repayment calculator:

  • Your monthly payments will be £1,169
  • Over the lifetime of the mortgage you’ll pay £150,754 in interest
  • The total paid will be £350,754

Ouch.

But wait – you’ll see in the calculator there’s a box for ‘overpayments made per month’.

Don’t leave it hanging! Instead let’s round up the mortgage to £1,400 a month, by entering a £231 overpayment every month into that slot.

Here’s a pretty graph showing what will happen when you do so:

By finding £241 down the back of a sofa / side-hustlin’ / skipping lattes each month, you:

  • Pay the bank £1,400 a month
  • Save £46,248 in interest over the mortgage’s life
  • Pay a far lower total cost of £304,506

Oh, and you get to pay off your mortgage seven years early!

My new mortgage-free hopes

You can see why doing these sorts of sums set my heart a flutter. I was racing to get started.

However back then it wasn’t so straightforward to overpay a mortgage. I didn’t live near a branch of the building society, and it all had to be done by post.

Also, I couldn’t commit to a set overpayment schedule. Instead I just threw whatever I could spare at it.

Every month I would write a cheque for whatever I could afford. I’d put my mortgage account number on the back, stick it into an envelope with a stamp, and post it off to the address of the relevant office.

And every month I would get a piece of paper back through the post stating the amount of my overpayment and the consequent reduction in the term of the mortgage.

Building a better dream

I hoarded those additional mortgage statements like treasure. I kept them in a special ring binder which I hid under the sofa, and I’d take it out and flick through it when times were hard.

That was important. Because mortgages are about emotions, not just money.

It was incredibly difficult, some months, to find any spare money. Often I resorted to selling things on eBay and sometimes Gumtree to make some cash. I very rarely bought anything nice for myself – for years. If relatives gave me money for my birthday, it went straight into the ‘mortgage-free fund’.

But because I got such a sense of achievement from my little file of paper statements, I kept going and I didn’t waver. 

Even when my socks became more hole than sock. 

Even when I messed up cutting my own hair and had to wear a hat for three months.

Squirrels gonna squirrel

The funny thing is that in some ways it was a very happy time for me. I was on solid ground. I had a mission and I knew how to go about pursuing it.

That walk to the postbox with my cheque every month – I don’t think I’ve ever enjoyed a walk as much since.

There were ups and downs of course. The course of true mortgage freedom never did run smooth.

Setbacks included a financially feckless ex-husband, a child with lots of unanticipated needs, an unwanted second mortgage foisted upon us by said ex-husband (before he was ex-ed!) and several banking shake-ups.

There was also a delightful episode when the building society refused to put the mortgage in my sole name because they didn’t like my job. 

But in the end I became mortgage-free not long before my 40th birthday. I’d shortened my mortgage term by about 12 years and saved myself tens of thousands of pounds in interest.

Living the mortgage-free dream

Becoming mortgage free took more than a decade of dedication, but it was worth the effort. It was, financially, the best thing I’ve ever done.

Now that I’m mortgage free I don’t have to worry about being one calamity away from losing my home.

And all that money I had to find every month – not just the mortgage payments, but also the overpayments – isn’t going out with regular cheques in the post anymore. This meant I could readjust my finances and start investing.

But paying off the mortgage didn’t just bring practical benefits.

It brought emotional ones, too.

I’d done something that once seemed impossible, against the odds, through sheer determination and stubbornness, on a low income while parenting, and through multiple crises.

I prioritised my long-term goal over short-term comforts, year after year. 

If I can do that then as others have said I feel I can do anything.

Mortgage free is one way to independence

Most of all, my mortgage freedom quest introduced me to the mindset of Financial Independence.

The FIRE acronym encourages us to think of Financial Independence as a very specific endpoint. It might involve retiring early or it might not. But the focus is generally on becoming independently wealthy.

But I think that misses an important point along the way.

Real financial independence starts when you step away from what you’ve been told, or from what other people are doing. When you reject the neatly-packaged Hallmark narrative of necessary debt and unnecessary spending, and do something bold instead.

There are probably a lot of people out there who are not and will never be financially independent, in the literal FIRE sense.

But they’re still reading and learning and dreaming big.

And they’ll find their own way to become free.

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