19 Jun 2019

Diamonds and Superannuation – What you need to know!

Following on from last week’s article where we compared diamonds with gold, this week’s “In the Loupe” is going to look at superannuation.

This is another very popular topic amongst the more than 10,000 investors who receive our “In the Loupe” newsletters, which is no surprise given superannuation is for many Australians the largest and fastest growing financial asset they have.

We are going to be looking at this from two angles, firstly comparing the long-term returns of diamonds to the returns on superannuation funds, as well as other characteristics that are important for investors.

After that we are going to look at how your superannuation can be used to invest in rare coloured diamonds.

Superannuation Returns Are Good. Diamond Returns Are Super.

Since the end of 2005, standard balanced growth superannuation funds, which are the funds most Australian’s invest in, have essentially doubled in value, which means they’ve grown at just under 6% per annum.

The increase in diamond prices has more than doubled the returns generated by superannuation funds, with the performance seen clearly in the chart below.

Average anuual growth from 2005-2019.

Source: Chant West, Australian Diamond Portfolio

The difference in return between superannuation funds and pink diamonds adds up to a lot of money when compounded over 13 years.

Any Australian who has had $100,000 invested in a standard superannuation fund since 2005 would have seen their portfolio grow to just over $207,000 by the end of 2018.

That’s not a bad result, but it is almost $300,000 short of what the diamond investors are sitting on. Australians who invested $100,000 in intense or vivid pink diamonds back in 2005 would now be sitting on assets worth just under $500,000.

Diamond Returns Have More Stability

Diamonds have been more stable than superannuation funds, as well as delivering higher overall returns. Superannuation funds have had four calendar years since the early 1990’s where they have seen their values fall, including a 21.5% decline in 2008.

Over the past decade and a half, pink diamonds have never recorded an annual fall in value, having some years where prices increase moderately, and other years where they rally by over 40%, a point that was also relevant in last week’s article where we compared diamonds to gold.

With Diamonds You Have Control!

With a superannuation fund, you are leaving the investments in the hands of others. This is not necessarily a bad thing, and as per the chart above the returns have been reasonable.

But for many people, control is important. This is understandable. After all, it is your money, and your retirement that this money is being saved for, and it is one of the main reasons I personally have my own SMSF (more on this below).

With diamonds, you have control, and the opportunity to specialise.

Our role at Australian Diamond Portfolio is to work with you to find the highest quality stones for your investment budget, and then help you with sourcing, storing and eventually selling those stones.

Whilst we are there to help, you will be in control of any investment decision. That’s empowering.

How about Diversification?

It is important to point out that superannuation funds are typically diversified across a number of asset classes. This is different to diamonds, where your money is invested in just one asset class.

It’s for that reason that most of our clients don’t put all their money in diamonds alone, and instead keep some of their money in other asset classes like shares too.

Diamonds in SMSFs

Pink diamonds are an allowable asset within a Self Managed Super Fund. Diamond Image © Rio Tinto 2019.

How to Invest in Diamonds Using Superannuation!

To invest in diamonds using Superannuation, you have to have a Self-Managed Superannuation Fund (SMSF). A SMSF is a structure whereby you as the individual take legal control of the money you have in super.

Specialist administration firms can help with all the paperwork required when running a SMSF and can typically provide those services for as little as $1,000 a year.

Given many superannuation funds still charge more than 1% as a fee, that means on a cost-basis alone, a SMSF may well become feasible for Australians with as little as $100,000 in superannuation.

Licensed independent financial advisers are of course better placed to advise whether or not a SMSF is the right course of action for anyone to consider.

Nevertheless, it remains a fact that that with a SMSF, you have full control of where your money is invested, and rare coloured diamonds can form part of your portfolio.

This was a major motivating factor for me managing my own super via a SMSF.

Conclusion

The price of diamonds has risen far more than the returns generated by standard superannuation funds since the mid-2000’s. These higher returns have been generated without the kinds of drawdowns that superannuation funds have experienced, in particular the -20% annual return seen in 2008, during the worst of the GFC.

You can invest in diamonds using your superannuation, though you must have a SMSF in order to facilitate this.

If you would like to know more, please get in touch. Helping people invest in diamonds using their superannuation is something we help clients of Australian Diamond Portfolio do every day.

 

Share this