07 Apr

Diamonds vs Superannuation

Financial markets appear set to keep investors on their toes for all of 2021, with the first quarter of the year throwing up no shortage of surprises.

The bond market had one of its biggest sell offs in decades, whilst commodity prices and inflation expectations continued to increase. Cryptocurrencies were also very strong across the quarter, whilst supposed safe havens like gold crashed, suffering their worst quarter in twenty years.

Finally, despite the volatility that we saw in some stocks like Tesla, the overall stock market continued to climb, with the S&P 500 in the United States topping 4,000 points in early April.

In the diamond world, we have continued to see strong demand for pink diamonds, in particular those from the recently closed Argyle Diamond Mine, with investors looking to add these to their portfolios.

News that select Argyle Pink Diamonds typically sold via tender are fetching more than a million dollars each at auctions will help keep this unique asset class front of mind for a growing pool of would be investors, all of whom are looking to protect and grow capital in the years ahead.

In this week’s update, we kickstart our Pink Diamond Investment Series by looking at pink diamonds, and comparing them to superannuation, an investment that is of immense importance to every working Australian.

Pink Diamonds vs. Superannuation

We are regularly asked about superannuation at Australian Diamond Portfolio, with clients asking us to compare the performance of pink diamonds vs standard superannuation funds over the long-run.

The table below looks at the time period from 2005 through to the end of 2020. It highlights the total returns delivered by an index of pink diamonds (comprising a combination of fancy pinks, fancy intense pinks and fancy vivid pinks) to the return from the median growth superannuation fund, which is the type of superannuation fund most Australians have their money invested in.

It also shows the best calendar year return, the worst calendar year return, and the growth of AUD $25,000 invested over time.

A table comparing Pink Diamonds with Superannuation

Source: Australian Diamond Portfolio, FCRF, Chant West

The data tells us very clearly that:

  • Pink diamonds have been far stronger performers over the last 15 years relative to diversified superannuation strategies, rising by 10% per annum and outperforming superannuation funds by more than 2.5%. For a $25,000 investment back in 2005, those higher returns in pink diamonds would have translated into an additional $45,000 of wealth by the end of last year.
  • Pink diamonds have been decidedly less volatile, with no major drawdowns, and a maximum loss of just over 3% in any given year. Superannuation funds on the other hand have seen losses of more than 20% in one calendar year alone, which can devastate investors, especially if it hits close to their retirement.

Whilst it is impossible to be sure, we believe pink diamonds will likely continue to outperform standard superannuation funds in the years ahead.

The key driver of this of course is the potential for further strength in pink diamond prices themselves, with higher levels of demand meeting extremely restricted supply.

Adding to this is the chance that diversified superannuation funds struggle to generate positive returns going forward, with these funds, or more importantly the Australians who invest in them at risk of going backward in the years ahead.

We say this because the data tells us that the majority of the money sitting in regular superannuation funds is invested in cash, fixed income assets, and the share market.

For reasons we will make clear as this pink diamond investment series rolls out, all of those markets are extremely risky right now, and are likely to remain that way for the foreseeable future.

Astute investors will be well served keeping these risks top of mind as they figure out what to do with their superannuation, and how to manage it so that it is appropriately invested.

Pink Diamonds inside Superannuation

Regular readers of our In the Loupe market updates will know that alongside my partner, I manage my superannuation through a self-managed superannuation fund (SMSF).

SMSFs are an incredibly popular, and fast-growing investment vehicle, with more than 1.1 million Australians, who collectively control over AUD $700 billion, choosing to invest their superannuation in this manner.

In essence, the difference between a ‘normal’ superannuation fund, and a SMSF is the fact that you as an individual, have legal control over the money in your superannuation fund, and can choose which assets to put your money into,  as well as which assets to avoid.

This was of great appeal to me personally, as my SMSF gives me the ability to invest in hard assets like pink diamonds, which is something I could not do in a normal superannuation structure.

SMSF’s can also be incredibly cost effective, especially as the amount of money you have invested in your superannuation fund grows, which it will for most people given they have to contribute 9.5% of their income to a superfund while they are in the workforce, with this number set to grow toward 12% in the years to come.

Obviously we can’t give financial advice, but on a personal note, these factors – legal control, enhanced investment flexibility, and cost effectiveness combine to make a SMSF a powerful vehicle for many Australians.

They also underpin why I think our clients are best suited thinking how they can maximise their superannuation, irrespective of whether or not they ultimately end up deciding to invest in pink diamonds as part of their superannuation portfolio.

As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and look forward to any questions or comments you may have.


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