Your Money: Diamonds are for love, not for money

What will your Valentine be left with after the roses have wilted? Wise investors are looking at second-hand gems and the status of their life policies

THE DIAMOND, we are told, is the ultimate gift of love. "The very word 'diamond' comes from the Greek adamas meaning unconquerable, suggesting the eternity of love," oozes De Beers in its promotional blurb.

This week lovers up and down the country will succumb to the mush, and go out and buy jewellery for their darlings. Valentine's Day traditionally hails a stampede to the jewellers and the hardiest buy an engagement ring to demonstrate their long-term commitment.

Yet while diamonds themselves may be for ever, and other precious stones are themselves pretty durable, their actual monetary value once bought, is likely to plummet. Jewellery is rarely a good monetary investment.

A retailer will mark up a new diamond ring by 50 to 100 per cent, and it could lose over half its value the moment you leave the shop. Even with a high quality stone bought at virtually wholesale rates in Hatton Garden, it will probably take five years to get back to par.

Investment in new jewellery should be seen, then, largely in terms of gaining your partner's goodwill, and not as acquiring an asset. "People should buy jewellery because they love it, or they want to give it to someone they love," said Alexandra Rhodes, jewellery director at Sotheby's. Buyers should beware any retailer trying to represent a purchase as a good investment. Hence the emphasis on intangibles such as love, eternity, and luxury - rather than outright value for money - in De Beers' massive advertising campaigns.

Over a longer period the value of high quality diamonds with good settings has outstripped inflation, while gold has tended to lag. Even so, when the ex-wife of the Aga Khan recently sold the 13 carat, heart-shaped Begum Blue diamond for pounds 4.6m, she was said to be looking for a better investment alternative.

One way of avoiding the retailer's mark-up is to buy antique or second- hand jewellery at auction. James Nicholson, senior jewellery specialist at Bonhams auctioneers, says punters can save between two-thirds and nine- tenths of retail prices by buying this way.

Further, if you know what you are looking for and your timing is right, you can make considerable gains. Take, for instance, cocktail jewellery from the Forties and Fifties. Before 1987 the stuff used to be broken up as unsaleable. Then prices shot up with the sale of the Duchess of Windsor's collection.

Jewellery often moves in step with with clothes fashion. In its last jewellery sale Sotheby's got three-and-a-half times reserve prices for Sixties and Seventies pieces from the collection of designer Andrew Grima.

But you have to be an expert, or very lucky, to succeed in this sort of speculation.

Jack Ogden, of the National Association of Goldsmiths, says if you want your jewellery to gain value in the long term, buying quality of stone is more important than quantity. If you pay little you can expect the Gerald Ratner proverbial. De Beers recommends four criteria for diamonds - weight, clarity, cut and colour. But with 3,500 categories of colour alone, you will probably need expert advice.

It is probably best to get advice from a member of a trade association - such as the National Association of Goldsmiths or the Incorporated Society of Valuers and Auctioneers. The Goldsmiths vet members on admission, and have a mediation service for customer complaints.

If a customer believes he or she has been had, they may seek redress under civil law. Local trading standards departments may also prosecute. The 1979 Sale of Goods Act requires products to be sold as described. It is, therefore, important to get a full description of the goods at the point of sale. For stones, especially diamonds of half a carat upwards, more and more jewellers are now issuing certificates testifying to their quality and cut. However, it is more difficult to prove that you have paid too much if the description is accurate: the valuation process is very subjective.

If buying jewellery for your loved one is beginning to sound too much like hard work, one city stockbroker suggests you get her some De Beers mining shares instead. Their long-term performance beats the actual stones hands down.