Play it Safe: Jeweler Stocks

• Risk level: 25

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Diamond dealers and traders thought the world's consumers were finally feeling wealthier after the recession, so they started hoarding stones. In the first six months of 2011, diamond prices soared more than 30 percent, to nearly $11,000 for a 1-carat stone, according to the widely followed Rapaport-RapNet Diamond Index. But when consumers didn't flock back, diamond prices plummeted. These days, a 1-carat stone runs about $9,400, about the same price as in spring 2011. Experts still think diamonds have a bright future, due to growing demand in Asia and the Middle East. One of the safest ways for investors to jump in is through the stocks of jewelers, says Paul Swinand, an equity analyst at Morningstar. Profits at Harry Winston Diamond (HWD) more than tripled in the most recent quarter. Meanwhile, more than half of Tiffany & Co.'s (TIF) sales come from goods containing the stones, and the store is increasing sales in China.

Go for Broke: Jewels

• Risk level: 95

Unlike gold or silver, diamonds are not easy to trade on the open market; there's an exchange-traded fund tracking diamond prices in the works, but for now, to truly speculate on diamond prices, investors essentially have to get the stones themselves. Of course, experts warn that this method is particularly risky (and that's assuming cat burglary isn't involved in acquiring the diamonds). No two diamonds are alike, and many dealers sell stones at a premium -- or discount -- to the prices reported by Rapaport, Swinand says. But for those willing to try, a basket of investment-grade diamonds (typically round, polished, 1- to 5-carat stones) are the most direct way to invest, says Saul Singer, a partner at Fusion Alternatives, an investment advisory firm specializing in diamonds. Plus, there's one great perk: showing off the stones. "Put them in safe keeping, and then take them out for a gala or an event," Singer says.