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.
At ShariaPortfolio, 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.
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, ShariaPortfolio included, 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. Purchase a Sharia-Compliant Mutual Fund
For people who don’t have the time or aren’t interested in choosing individual stocks to invest in themselves, a good alternative would be to buy shares in a Sharia-compliant mutual fund. Mutual funds are buckets of stocks that an advisor has researched and packaged together in a fund. As an investor in a mutual fund, there is a minimal amount of work involved – you could buy into it and then forget about it.
The downside to this option is that many mutual funds don’t perform well over the long term – it’s hard to consistently beat the market. Additionally, mutual funds often come with high management fees. And since they are intended to be fairly broad in scope, they can’t be personalized to your specific interests or risk preferences. These limitations apply to all mutual funds, but since the universe of Sharia-compliant funds is small to begin with, your options become very limited, indeed.
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. The ShariaPortfolio Express program, which is our robo-advisor service, is a great option for those who want to get involved in investing, but don’t want a more hands-on experience.
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. With our ShariaPortfolio Access program, our advisors can help you invest in real estate or other alternative assets. We also help to customize your portfolio and provide strategies that can lower your tax burden. Our Access program also costs less than many mutual funds, making it a highly effective and affordable option.
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. For more information, please visit https://shariaportfolio.com/