People regularly ask us about halal investment ideas. So I thought it might be useful to map out what interesting things a Muslim can invest in for 2020.
I’m going to draw on my own experience as someone who’s been investing for quite some time now so you should hopefully find it insightful. Even if you’re already a savvy investor, you may find something in here you hadn’t thought of.
The Golden Rules
So as a quick bit of foundation work, let’s try and set some key principles when it comes to investing.
Know why you’re investing
This is really important, because it basically guides everything. Your strategy if you’ve got 20 years to invest with no real need to access the money in the meantime is vastly different to you having 1 year to invest with a potential need to access the cash.
Your reason for investing determines your risk appetite. That’s important, because the amount if risk you take usually correlates to the returns you can get in the market.
So be really clear in your head as to why you are investing.
Time is your best friend. This is why you need to understand why you are investing and how long you can stay invested.
For example, if you had just bought a property and 6 months later the property market crashed, your reaction would probably depend on how quickly you had to sell the place.
If you bought it as a flip and you were planning to sell it right then, that would be a disaster. But if you had planned to keep it long term, then you wouldn’t be bothered.
That’s why time in the market is important. If you can’t stay invested you may ending up being forced to sell at a loss because of your own need for the cash. Whereas if you can afford to be patient you can ride it out until the market has ticked up again.
Everything in moderation
You have to be about the proportions of your money allocation to protect your downside. That means not going all in on one particular asset class, oarticularly if it’s not a safe or conservative asset class.
For example, if you wanted to go all in on a savings account (knowing it’s low risk, low return) then I can understand that. But if you were going quite aggressive, for example 100% into stocks, then you need to be careful. What if the market crashes?
It’s not about being fearful, it’s just about protecting your downside.
Property is an investment favourite. It gives you nice solid income and you have a bricks-and-mortar asset to your name.
The idea is that you buy a property and then rent it out to tenants.
Typical returns for property are around 6% per annum but they can be as high as 10% or more.
The cons with having a buy-to-let property are having to deal with tenant troubles. You’re legally responsible for certain repairs and if you’re not careful or even just a bit unlucky, you can wipe out your returns.
Property is good for someone who doesn’t fancy that much risk, but wants to put their money to work in a way that’s more than just a savings account.
The great thing with property is that you can get a buy-to-let on an Islamic mortgage, so you’d only put 25% cash down. Many people then use the rental income to pay the mortgage.
Even if there’s no surplus at the end of it, you’re still paying down the equity in the house, effectively for free. And at the end of the mortgage term, you’re sat on an asset worth a few hundred thousand pounds.
I know people who just buy up a few decent rental properties early doors and think of it as their pension money. Of course, hopefully in that time, the actual house price would appreciate too.
Here are some useful resources for you if you are thinking of buying a rental property:
- The most comprehensive Islamic buy-to-let mortgage comparison tool
- Understand landlord’s responsibilities in the UK
- Your tax and financial responsibilities as a landlord
- Buy-to-let purchase guide
The above approach is very much hands-on. Buying a property, finding the tenants and maintaining the property are all drawbacks of doing a buy-to-let.
There are however FCA-regulated companies that are now doing crowdfunded buy-to-lets in a sharia-compliant way. The concept here is that a group of people pool their money together to buy a buy-to-let property, and they appoint the company who does the crowdfunding to source the property, find tenants, maintain the property etc.
Of course, you can expect your returns to be slightly lower perhaps (although not necessarily) because of the fees you pay. But in return, you’re getting a few things: i) the ability to invest a small amount of money, ii) a hands-off approach.
Land has historically been the preserve of our parents’ generation, buying up stuff back home. But we recently came across Introcrowd who are a sharia-compliant land investment platform.
The central idea is that they purchase strategic land and sell on for a profit. The land is funded by crowdfunding from a group of individual investors.
The stock market is generally regarded as the best form of long-term investing.
Investing in shares comes in a few flavours. One approach is where you choose the companies yourself and buy shares for that company. The other approach is to invest in funds.
Funds are run by fund managers who invest in a basket of companies depending on the strategy of that particular fund.
The key thing to look out for as a Muslim is that the fund is certified as sharia-compliant. This will mean that the fund managers are working towards an established set of criteria which make it halal to invest in.
You can check out individual halal funds to invest in via our halal investment comparison page. The likes of Wahed and Simply Ethical all have sharia-compliant funds too.
You’ve probably heard about the astronomical returns that early investors in the likes of Uber got (around 5,000x when Uber floated). So that means an early £5,000 into Uber would be worth £25m when it floated.
Startups offer a high-risk, high-reward investment if done well. The statistical chances are the startup you invest in will probably fail. But if you hit on one that scales big, it will more than make up for the ones that fail.
The hard bit about startups is that the best ones are in private circles. There are some public platforms like Seedrs . I’m not saying that there aren’t any good startups on there, but the best startups never really need to go on platforms like Seedrs to obtain funding.
As a result, you have to make sure you’re well-connected enough in the startup world to get hold of these deals.
A good place to start is your own private network. Start with your extended family, university networks, work colleagues or similar and work your way out from there.
If you are interested in startup investing I’d recommend reading my article about it here.
Gold is somewhat of a store of safety when it comes to the overall economy. People like it because it’s physical and traditionally has been the go-to investment.
I’m not sure the reality actually bears that out (see this video) but if you’re adamant about buying gold, you can do so via an ETF in Wahed Invest or Simply Ethical.
Sukuk are a fixed-income product. So you’re buying solid, steady returns rather than crazy growth.
You can buy exposure to sukuk in Wahed Invest or Simply Ethical.
This is a personal favourite of mine. Very much overlooked, and I don’t think you’ll find this tip in many other places!
But recently I’ve been buying small businesses that my wife runs. The small business market is great for buyers in that sellers are often very keen to sell, and they can’t really command high prices for their business because it needs someone to actually run it (i.e. it’s not a passive investment).
If you’re clever about it, you can spot a business that requires fairly minimal day-to-day work or has parts of the business which you could automate if you have access to tech talent.
I’ve bought two businesses now, both on a 2x net profit multiple. So in theory, they’ll return me a 50% yield and from then on just be an income stream. Let’s see how it pans out.
I am planning to do a full guide and series on this whole space so keep your eyes and ears peeled.
In the meantime, listen to me talking about it in our podcast here.
So there we have several halal investment ideas for 2020. The single best place I can recommend going to is our halal investment comparison page. You’ll quickly be able to filter and sort your options to find what works for you.