Shariah Compliant Investments
I once listened to a financial podcast where the host described a haunting story that an elderly woman shared with her. She opened an investment account and transferred money into the account where it remained untouched for decades. When she was nearing retirement age, she checked the balance of the investment account expecting significant growth. Since the money was never invested, the account served as nothing more than a savings account and had the same balance it did when she first opened it.
I come back to this story often. A lack of quality financial education can have life-altering consequences. It makes me wonder how her story would have played out differently if there was more social acceptance surrounding transparency in finance. It is critical to share knowledge on the topic to avoid similar mistakes, especially considering the lack of institutionalized education on financial literacy.
With that said, if you’ve made an investment account, but are unsure of what to begin investing in - this is a good place to start. I’ll reference different types of funds and want to ensure that these are properly defined first.
Stock: Purchased on a company-by-company basis, a stock is an investment that gives you an ownership share in a company.
Index Fund: A collection of stocks for multiple companies that aims to match the market’s rate of return.
ETF: Very similar to Index Funds. The main difference between the two is that ETFs can be purchased at any time of day while Index Funds have a set price at the end of the trading day.
*Note: The difference between ETFs and Index Funds has little to no impact for investors interested in following Islamic trading practices.
Mutual Fund: A collection of stocks for multiple companies that aims to exceed the market’s rate of return. These funds typically have higher fees than index funds since they are actively managed in an attempt to exceed the standard rate of return.
NerdWallet has great resources that help define these terms in more detail that I’ll link below:
https://www.nerdwallet.com/article/investing/what-is-a-stock
https://www.nerdwallet.com/article/investing/etf-vs-index-fund-compare
https://www.nerdwallet.com/article/investing/index-funds-vs-mutual-funds
I also highly recommend downloading the Zoya app. It is an incredible and powerful tool to ensure that your investments follow shariah compliant guidelines and can be a great resource for selecting individual stocks to invest in.
If you want to put your money in a fund, it will get disbursed into multiple stocks and help diversify your portfolio. Some index funds and mutual funds have been extensively vetted and are made up of a list of shariah compliant companies.
You may hear people referring to diversifying your portfolio as an important part of investing. That is what makes index funds, mutual funds, and ETFs so alluring. You place your money in one fund and the fund does the work for you. As I’ve explored different investment options, I find myself gravitating towards these funds over individual stock picks. Below are some of the shariah compliant funds I’ve invested in:
AMAGX (Amana Growth Mutual Fund)
AMANX (Amana Income Mutual Fund)
IMANX (Iman Mutual Fund)
SPUS (Shariah compliant US ETF)
HLAL (Shariah compliant US ETF)
What type of growth have I seen in these investments? In addition to my employer sponsored 401k account, I’ve opened a secondary retirement account called a Roth IRA. I’ll talk more about this account in detail later, but as of today’s post I have only allocated money within my Roth IRA in the above mentioned funds. This account has seen a net gain of 16.92% since I first opened the account about two years ago.
The funds I mentioned above are not your only option when it comes to shariah compliant investing. I hope to continue sharing what I’m investing in so that halal investing can feel more attainable, but I acknowledge that each person’s financial situation and investment philosophy is different. Feel free to explore different resources that work for you. Also note that as the graph above shows, your investments can lose value. With time, patience, and a steady investing approach those losses should be fractional in comparison to your overall gain.