Pros and Cons of Investing in Gemstones

Gemstones are a high-risk, yet high-return, investment. Hence, one must be cautious before investing in expensive gemstones. Here are some pros and cons of investing in gemstones that will help you make the right decision.
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Pros and cons of investing in gemstones
Quick Tip
Gems which are lesser in value, appreciate more over a period of time. Hence, you should invest in gemstones which are not too expensive, as it will be easier to find a buyer for them in the market.
Many people invest in gemstones as they are a high-return investment. The markup price, particularly on gemstones, can be very high, thus, enabling one to register a decent profit. Also, these investments are generally stable in nature, and hence, are the preferred choice of many investors. However, there are certain risks involved. For example, there can be a devaluation in the cost of gemstones if they are not cut in an appropriate way.

Also, it can be difficult to distinguish genuine gemstones from fake ones, unless you involve a trusted gemologist. Hence, it becomes imperative that you must be aware about the risks and benefits of investing in gemstones. Here is a list of pros and cons of investing in gemstones.

Pros

No Price Fluctuations
Gemstones are not subjected to extreme volatility and price fluctuations like stocks. Hence, when you buy a gemstone, you don't have to worry about depletion in its price.

Increase in Value
You have the option of cutting the gemstone into smaller versions or using it to make jewelry. You can also undertake polishing of the stone. All this will increase the value of your asset.

High Stability
The demand for precious stones will never decrease, irrespective of the market conditions, as it makes a viable investment. Hence, if you want to invest in something that will steadily appreciate in value, like gold, gemstones can be your option.

Easy Portability
You can carry the gemstones in your pocket, and no one will be able to tell. Gemstones are highly portable, and you do not have to worry about security, like you would while transporting gold bars from one place to the other.

Immune to Economy
It is often said that gemstones are one such investment whose price will keep on increasing, irrespective of the economic conditions throughout the globe.

Durability
Gemstones are relatively durable and will not whether easily with time. They also do not crack or scratch easily. They are not affected by climatic conditions or when exposed to air, like silver.

Cons

Knowledge is Necessary
You need to have knowledge about gemstones before you invest in them. This is because, you just cannot blindly believe someone who tells you the value of a gemstone. You will have to understand it yourself, to avoid undervaluing the gemstone while selling or overvaluing it while buying.

Security is an Issue
You cannot just take your gemstones from one shop to the other for selling them. Just imagine, if someone keeps a watchful eye on you and robs you, then you may end up with absolutely zero value.

Long-term Investment
You will have to keep gemstones as a long-term investment to sell them at the right time. Hence, if you have an urgent cash crunch, unlike stocks or gold, you will not be able to get the right price if you plan to sell the gemstones urgently.

Chances of Fraud
Many gemstone sellers con others by selling interested buyers substandard or fake gemstones, and charging a high price for the same. This makes investment in gemstones a risky proposition.

Low Liquidity
It is very difficult to find buyers for gemstones as they are not traded as much as gold or diamonds. Also, they do not have an international marketplace. Hence, they have a very low liquidity.

Storage is Challenging
As gemstones are tangible assets, you will have to ensure that you store them in a safe place or a bank vault. If store them at your home, you may stand to lose your gemstones in case of theft or robbery.

Cleaving Damage
If the stones are polished and well-cut, they will fetch better prices than their uncut versions. However, the issue with gemstones is that they may cleave and break into splinters during the process of polishing or cutting. Hence, it is a riskier to break the stone.

Devaluation
If the gem cutting task is carried out in an unprofessional way, you stand to lose out on its value. A haphazard-looking gemstone can lead to decreased value, and you will end up losing money.

If you polish or cut the stone, this will be an added cost. Ensure that the investment yield matches up to the expenses you undertake for the gemstone. You must always buy gemstones from reputed vendors. It is advisable that you verify the gemstones and their value from at least two or more professional gemstone evaluators who will be able to grade them. Now that you know about pros and cons of investing in gemstones, ensure that you make the right investment decision.

Our Verdict: Rather than investing in other natural gemstones, it is better to invest in gold or diamonds, as they fetch buyers easily.
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Published: February 21, 2014
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