A while back we criticized the media’s coverage of alternative investments – the fact that wine, antique coins, and race horses are frequently on lists of “alternative” investments. In our opinion, exotic alternatives are more likely to get retail investors fleeced than anything else. Collecting art or antique cars isn’t necessarily a bad thing… it’s just not something you should be betting your retirement on.

But just because something is a bad idea doesn’t mean that someone out there won’t soon be trying to sell it. When you combine the fact that investors increasingly want alternatives…plus the fact that investors like ETFs… what do you end up with? One of the worst investing ideas we’ve seen in a while. Via the Wall Street Journal:

From the list of assets that haven’t yet been turned into exchange-traded funds, you can strike another one: diamonds.

Today, GemShares, a Chicago-based financial firm, is expected to secure a U.S. patent for its process of turning diamonds into tradable securities.

Let’s just be clear: investing in diamonds is probably a bad idea. They’re illiquid, difficult to price, and the global industry is controlled by a relatively small group of players. Diamonds do have industrial applications, but this ETF is specifically marketing the more expensive “pretty” diamonds.

And as we’ve said time and time again, long-only commodity ETFs have their own set of problems. Combining the two into a diamond ETF is like constructing some sort of Frankenstein’s monster of bad ideas.

Our two cents? Stick with something that has a little more of a track record. Alternative investments and ETFs both should have a place in your portfolio… but this is definitely not the way to do it.