Retirement
Diamonds in your SMSF, darling?
A kiss on the hand may be quite continental, but are diamonds an investor’s best friend?
Diamonds in your SMSF, darling?
A kiss on the hand may be quite continental, but are diamonds an investor’s best friend?
It depends, SMSF technical expert and general manager at Super Concepts Graeme Colley told Nest Egg.
He said the diversification prospects offered by investing in precious gems need to be worth the liquidity risk and administrative burden.
“Of all the around 20,000 funds we've got [at Super Concepts], we'd have around about 10 that would have diamonds in them and they range from clear diamonds right through to the more expensive coloured diamonds,” Mr Colley said.
“They've made a choice to invest in that. It's not a particularly large percentage of the fund, even though diamonds are relatively expensive, so what they look at is the diversification of the investment.”
He said larger SMSFs are generally more suited to investing in diamonds in order to spread the risk and warned that liquidity can be a problem if the fund is overweight in diamonds.
Anna Cisecki, executive director at specialised diamond brokerage Australian Diamond Portfolio, agreed that liquidity poses a risk, along with choosing poor-quality or common stones.
She said red, blue and pink diamonds are the best bet for would-be investors, given their rarity and potential for future price appreciation.
Noting these stones have seen performance rise by nearly 13 per cent per annum over the last 12 years, Ms Cisecki predicts this growth will continue given the nearing closure of the Argyle Diamond Mine, which produces more than 90 per cent of the world’s pink diamonds.
“Diamonds also tend to hold their value even when financial markets are volatile, so they provide some diversification benefits when looked at in the context of an overall SMSF portfolio,” she added.
“Diamonds are not best suited to short-term investors, as they don't offer daily liquidity like shares, so investors should ideally have a three to five-year plus timeframe if they're looking at this sector.
“To help ensure you're picking a quality diamond, most investors like SMSF trustees will work with a specialised diamond broker… who will source a diamond on their behalf, and ensure they diamonds are independently assessed and valued by a certified diamond laboratory.”
Mr Colley said SMSF trustees should also be aware of the different restrictions and requirements on investing in diamonds.
Storage
Trustees need to understand the difference between investment diamonds and jewellery.
“With an investment diamond you can stick it in your back pocket if you're that excited … whereas if it's jewellery, it falls under the artworks and collectibles rules in the superannuation legislation and they've got to be stored in a particular way and they've got to be insured,” Mr Colley said.
“You can't use them as jewellery personally because it's in breach of the [sole purpose test] rules as well.”
He said most people with investment diamonds store them in a bank vault, or in a personal safe.
Acquisition
Diamonds owned by a member can’t be put into an SMSF.
“Grandma's ring, if it came to you after her death, can't go into the fund. That's an important consideration, it's not only things that you might own personally going into your own fund but also any other trustees of the fund,” Mr Colley said.
Valuation
SMSFs need to have the assets valued at market value every year, Mr Colley said. Members may need to prove the existence and storage of the diamond and may also draw the attention of auditors.
“Being able to justify or certify where they are can be an important consideration as well,” he said.
“For those that are thinking of going ahead with it, they really need to look at it as to whether it's a true investment or they're just doing it because their heart's telling them to do.
“Be sensible, diversify your investments and make sure it's a good investment.”
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