The importance of halal investing

The importance of halal investing

Time is one of the biggest factors in your favor when you invest – the sooner you start, the longer you’ll have to grow your money.

The importance of developing a personal investment plan to achieve your financial goals cannot be overstated. With increasing wealth coming in the Muslim community, professionals from all sectors are starting to ask questions about protecting and growing their wealth: How can I become more tax efficient? How do I save for retirement? How do I make sure I can afford to send my children to college?

We believe that the answers to these questions must include an investment plan; after all, investing can help you give your kids a great education, retire in comfort, and reap a variety of tax benefits.

Considerations of Investing

If you’re like most people, you probably rely on your paycheck as your main source of income. Especially as you get older, however, it is important to have more than one income stream in case you are no longer able to hold down a well-paying job. Developing multiple income sources should start as early as possible, so younger Muslims are in a prime position to set themselves up for success financially.

 we are strong believers in having at least three alternative revenue streams. Regardless of what you do for a living – whether you own your own a business or work for a company – your paycheck will be your main source of income but over time, other revenue streams should contribute more to your income. Additional revenue streams could include owning real estate, buying and selling commodities like gold, or even investing in an internet startup you believe in. The goal, however, for any young Muslim should be to develop at least three different revenue streams.

Sharia-Compliant Investing

What about adherence to Islamic values? Can investing be done in a halal way, without compromising personal and religious morals and beliefs?  

In fact, it can, and there are quite a few companies, that provide Muslims with investment options that are 100 percent Sharia compliant. These companies avoid investing in non-halal sectors – such as alcohol, gambling, weapons, and adult entertainment – as well as in businesses with high percentages of debt. But there are other ways as well. Let’s take a look at the different options that are available for Muslims looking to begin their investment journey.

How to Start Investing

Time is one of the biggest factors in your favor when you invest – the sooner you start, the longer you’ll have to grow your money. There are different approaches to investing that you can choose from, based on your personal situation, but the important thing is to take that first step:

1. Start your own portfolio

This is the most hands-on approach for an individual, though it can be a daunting task. With this option, you would open a trading account with a discount broker or a firm like TD Ameritrade, which would allow you to buy and sell stocks on your own, paying the broker a low fee per trade.

The problem with this option is that it is difficult to determine whether a particular stock is Sharia compliant. The organizations that determine compliance are subscription-based and do not share this information on a case by case basis to individuals. As an individual investor, you would have to review the prospectuses of Sharia-compliant mutual funds, each of which would give you a listing of up to 300 stocks that are Sharia compliant. You would then have to sort through those stocks to invest in companies you believe in.

2 .Is a Mutual Fund Halal?

It is halal to invest in a mutual fund, or ETF provided the securities of the underlying investment itself are halal, and there are no instruments inside the fund or ETF which are riba. Should there be any interest-bearing or riba earned, then it is imperative that the investor keeps track of and donate those proceeds to a charity

3. Use a Robo Advisor

Robo advisors are still a relatively new concept, but there are many benefits to using these automated online systems. A robo advisor will typically diversify your money across a variety of selections, including both mutual funds and stocks, and will automatically move your money based on your individual preferences and how the market is performing. These services are generally low-cost as well. 

4. Work with a Financial Advisor

This is the most comprehensive solution and would be right for someone who wants investment guidance through various market conditions and life stages. A financial advisor will work with you to set short and long-term goals and will be able to provide investment options in addition to stocks and mutual funds. 

No matter which option you choose, taking the first steps to investing will set you on the path to achieving your long-term goals. Remember, being able to retire comfortably, save for education costs, and become tax efficient takes money, and growing your resources takes time. It is never too early – or too late – to begin investing in your future.

Aliredha Walji is the Vice President of ShariaPortfolio, a boutique asset manager specializing in Sharia-compliant investing and Halal investments. Among the first wealth managers to deliver Sharia-compliant and Islamic investment solutions, ShariaPortfolio carefully maintains social responsibility and ethics in its investment choices.

Is Investing Haram in Islam?

Some important questions are at play … 

• What investments are there where interest (riba) is generally not involved, and,
• Where can you find Halal investment opportunities?

Remember, the term Halal investing is about investing in funds or transactions which are in compliance with Shariah Law. 

In theory, whether you are investing in Halal investments or any type of investment, you are looking for a return on your equity, and are looking to maximize your investment returns.

There’s an important distinction though, and that is, when you are investing according to Islamic law, it prohibits investment in certain types of companies industries, and investments (discussed in greater detail below).

In addition, when you are investing according to the traditions of Shariah law, you are encouraged to invest in a socially responsible way, for example, investors are advised not to invest or engage their funds in industries that are closely linked or associated with things like smoking, alcohol or pornography (more on this below).

Having reviewed the above, there are many options for halal investment  accordance with Shariah law, and these will be reviewed below.

In addition, halal life insurance in the USA and Shariah-compliant forex trading is also gaining popularity who wish to invest according to Islamic law, so, we’ll cover that as well.

Is a Systematic Investment Plan (SIP) Halal or Haram?

A SIP is halal provided you authorize the investment, and the investment itself is being made in a Shariah-compliant investment (meaning an equity or sukuk investment). For reference purposes, a SIP is an automatic deduction of a pre-set amount from your bank account on a monthly, or calendar-based schedule, to be invested in a mutual fund or similar investment.

Is Forex Haram?

In the USA and Canada, there are many brokers who provide shariah-compliant forex trading. An Islamic Forex account can be opened where interest-free Forex trading is possible. Such an account is also known as ‘No Riba Forex’ account. 

An experienced halal forex broker can help investors understand the different aspects of options trading or halal trading, and whether adakah forex haram. With the right guidance and experience, it is possible to earn a reasonable return through forex trading.

Are 401(k) Halal?

In spirit, there is nothing wrong with investing in a 401 (k), but it is imperative that the underlying investments themselves are halal, and for that reason, most adherent Muslims won’t invest in a 401 (k) unless they can be assured that the investments are halal, that no riba is earned, or, that they can direct the proceeds of the investments themselves to assure Shariah-compliance.

Are Binary Options Haram?

Binary options are a somewhat contentious issue within Islamic investing. The quick answer is no, it is not halal to invest in binary options. The problem is, the spot financial markets are done on a 24-hour basis, and since at 5 pm, all open positions are rolled over to the next 24-hour cycle, daily interest is added to the brokerage account, and since interest is haram according to Shariah law, in theory, binary trading is haram.