You’re reading this because you want to start educating yourself and get started on your Islamic investment journey. You want to invest your money but are concerned about the Islamic permissibility of where you put your money.
Let’s get you started in 4 painless steps.
In this article, we’ll discuss:
- What does “halal investment” mean?
- Why is halal investment important?
- Three golden rules
- Investment options
What does “halal investment” mean?
We have a great article here explaining what this means by Mufti Billal Omarjee.
Briefly, the key is that a halal investment is Islamically lawful or permissible.
Some of the principles to note include:
- Not investing in obviously haram things
- Avoiding riba (interest)
- Avoiding gharar (uncertainty)
- Avoiding maysir (gambling)
Why is halal investment important?
Before you put your hard-earned money to work, it’s good to remind us why it is important to always make sure it is halal.
There are many places in both the Quran and Sunnah that emphases to us the importance of halal earnings.
The Quran says: “Eat of what is lawful and pure in the earth, and do not follow in Satan’s steps.” [2:168].
In a hadith, the Prophet ﷺ said, “Earning halal livelihood is binding (wajib) on every Muslim.” [Tabrani].
Again, more here from Mufti Billal.
Now you understand what halal investment is and the importance of it, let’s discuss the different options available.
Three Golden Rules
Mohsin here explains three golden rules when it comes to investing. Briefly:
1. Know the reason for investing
Are you here for the long or short term? What is your risk appetite?
Answering these are important, as it will guide all future choices. For example, an appetite for higher risk would mean concentrating your investments into certain asset classes such as stocks and shares. On the other hand, a low-risk appetite may lean you towards gold or sukuk (Islamic bonds).
How quickly do you need to access your cash?
You temper your risk depending on goals, and how long you have.
Take Day trading. This is the fast food of the stock market. It’s for those who are skilled enough to make a profit in a day. However, day trading is hard – it’s not a get-rich-quick scheme. It requires a lot of education and practice.
Property is another example. This requires a huge amount of capital. If you’re willing to wait, a crash in the market after purchase may not worry you as much. However, if you want to make a quick flip and it does crash, you’ll be left exposed with your money tied into an asset that will make you a loss unless you hold onto it until things get better.
3. Everything in moderation
It’s important to mix both assets and risk types so you’re not left vulnerable to losses but also foregone returns.
For example, you could go very safe and leave your money in an Islamic savings account – but then you lose out on the returns possible in other asset classes and probably lose money overall with inflation so high. But at the same time, putting your entire portfolio in stocks is an aggressive approach only appropriate for some.
For a detailed explanation, check out our Halal investing 101 Guides
These investments listed below are ordered in order of risk – with fixed income being the lowest risk and high growth investments being the highest risk (generally).
We’ll very briefly explain each of these below. But check out our Halal investing 101 Guides for more of an in-depth explanation.
1. Fixed Income
Fixed return investing is the bread and butter of most mainstream investment portfolios – but for Muslims, it is extremely difficult to find fixed income products.
The two options available are sukuk and property.
Read more in our Halal 101 fixed income guide.
You may not be on the property ladder yet – but there are many ways anyone can access property today regardless of how much you have to start with.
There are 4 different property investment methods:
- A property investment company – e.g., Yielders
- Property funds
- Development project
Read more in our Halal Property Investing 101 Guide.
Stock investing is the bread and butter of pretty much any investment portfolio for a large part of your lifetime.
It is commonly regarded as the most preferred form of long-term investing.
There are 3 key ways to invest in stocks:
- DIY it
You can check out individual halal funds to invest in via our halal investment comparison page.
Read more in our Halal Stock Investing Guide 101.
4. High growth
Most portfolios should also have a little bit of exposure to high-risk, high-reward investments too. These types of investments add diversification to your portfolio as well as give exposure to high growth investments.
High-risk high-return investments are also often referred to as “alternative investments” or “growth investments” or “high yield investments”.
Assets in this category have two primary features:
- Illiquid – you cannot easily convert your investments into cash quickly or immediately. You are typically looking at a hold period of between 2-8 years.
- Investments have the potential to do 10x returns, but also the potential to return nothing.
Typically, these investments include:
- Startup investing;
- SME business finance; and
- Property development-based projects.
You can’t make money off the stock market from companies that are not sharia compliant. Apps like Zoya or Islamicly can help with this, however, they’re always just a starting point. You need to check yourself.
You can learn how to find halal stocks which are halal by:
- reading some of our stock screening articles, such as this one on Apple.
- Our halal stock screener course.
- Our IFG Fund Replicator also sharia screens the full list we share with you.
Read more in our High Risk High Reward Investments 101 Guide.
As Muslims, we should always be conscious of where and how we invest our money. Do fully read our Halal investing 101 Guides and try our Halal investment comparison tool before you make your journey. From there you should be well equipped to at least make a start.
We also have an article on Halal Investment Ideas for 2021.