What Is a Lab Grown Diamond and Is It Worth the Investment?

December 9, 2022

Lab grown diamonds have only been around since the 1950s, whereas mined diamonds have been forming under the earth’s crust for billions of years.


Naturally, many buyers are hesitant to buy a lab-grown diamond because they’re not sure whether it’s a good investment or not. 


So what’s the consensus? Are lab grown diamonds a good investment?


Read on to find out!

What is a lab grown diamond?


The first thing you should know about lab grown diamonds is that they are 100% real. Despite what you may have heard, they are not fake or worthless. In fact, lab created diamonds undergo the same pressure and temperatures that natural diamonds do, except in a controlled lab environment under an accelerated time frame. 


This makes lab grown diamonds chemically, physically, and optically identical to mined diamonds. The only difference lies in their origin.


The authenticity of lab grown diamonds is validated by the fact that the top diamond grading institutes—the International Gemological Institute (IGI) and the Gemological Institute Of America (GIA)—rate lab created diamonds the same way they do natural diamonds: according to the “four Cs,” which are cut, clarity, color, and carat.


In addition, dealers and buyers price lab grown diamonds the same way they do natural diamonds: according to the Rapaport Pricing Method.


All this is to say that in the diamond business, lab grown diamonds are treated the same as any other diamond. 


What makes lab grown diamonds valuable?


The value of a lab grown diamond depends on basic forces of supply and demand.


As lab grown diamonds become more popular (which they are), the demand for them goes up, which puts upward pressure on their price. 


On the flip side, the supply of lab grown diamonds isn’t limited in the same way natural diamonds are. Theoretically, jewelers could continue making lab grown diamonds and  pumping more supply into the market indefinitely, whereas there are only so many natural diamonds you can extract from the earth. 


So if the supply of lab grown diamonds continues to increase, this will put downward pressure on prices.


What is the resale value of a lab grown diamond?


That said, the value of a lab grown diamond only really comes into play when trying to sell it. Right now, the primary market for lab grown diamonds is relatively stable. Lab grown diamonds continue to maintain their value because they still take a lot of specialized machinery to create.


The secondary market for lab grown diamonds looks much different, however. First of all, any diamond loses about 70% of its value when you walk out the store. That’s as true for mined diamonds as it is for lab grown ones.


That means if you were to try to sell your lab grown diamond on a secondary market, such as an online marketplace like eBay, you’d only be able to sell it for about 30% of what you bought it for.


However, it’s extremely difficult to resell a diamond ring since most buyers only want to purchase one from a reputable jeweler who offers a guarantee of the diamond’s value and authenticity, not some random person on the internet.


Even if you do manage to resell a diamond ring, the chances of you turning a profit are extremely low. The only times people manage to resell a diamond for more than they bought it for is when it’s an extremely rare diamond that has been held onto for many years.


Hopefully, you never need to resell a diamond ring since it’s meant to symbolize a life-long marital bond (though there’s a chance you may want to someday, given the divorce rate in the US is around 50%). 


When does a lab grown diamond make a good investment?


At the end of the day, a diamond’s investment value depends mostly on how much you buy it for in the first place. 


As already mentioned, lab grown diamonds cost significantly less than natural diamonds do (mostly because the supply chain to create them is much shorter), so in one sense, you could argue that they are less valuable. 


But that doesn’t mean that they are a worse investment. After all, return on investment (ROI) depends as much on the return as it does on the initial investment. Let me explain:


Say you buy a natural diamond for $10,000 and the resale value is $3,000. That’s a total loss of $7,000. Then say you buy a lab grown diamond for $5,000 and you’re unable to resell it at all. Though the natural diamond costs more, it also loses you more money ($7,000), whereas the lab grown diamond that won’t resell puts you behind by only $5,000, and you still get to keep the diamond. In other words, investing in the lab grown diamond leaves you $2,000 better off.


On top of that, if demand for lab grown diamonds continues to grow, their primary market value may appreciate, which could increase how much you could resell them for.


And it’s looking like that’s the way things are going. Younger generations are more environmentally conscious, and many would happily pay more to support eco-friendly products. And since lab grown diamonds require less energy to create (6 pounds of carbon per carat vs. 25 pounds of carbon per carat for natural diamonds) and don’t require displacing vast amounts of earth with huge machinery, they are the better choice. 


Plus, the sourcing methods of lab grown diamonds are more reliably ethical. Whereas some natural diamonds have been used to fund wars in Africa and other controversial movements (hence the name “blood diamonds”), you can know exactly where lab grown diamonds come from.


The final verdict


Most diamond purchases are emotionally driven, and that’s okay. If all you want to do is buy a ring that your significant other loves, then you should.


To the extent that you’re also concerned about the investment value of a diamond ring, you’ll need to consider the many factors outlined above. 


It’s hard to say exactly what a diamond ring will be worth in the future. But you can be sure that your ROI on a lab grown diamond can be just as much as that on a natural diamond. So the choice is up to you.

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