The investment choices, err, Halal investment choices

The smartphone and internet has revolutionized everything ranging from how we connect with people to how we shop. Fortunately, it has also changed how we invest.

Traditional investment choices were real estate, bonds/Certificate of Deposits(CDs) and commodities like gold. Today you have stocks, mutual funds, ETFs, REITs and cryptocurrency to name a few. While we may be tempted to seek least risky choices with most return, as a Muslim you also have to make sure that it is Halal.

Real estate is the most straightforward investment one can do but it requires a lot of capital and/or involve loans to most of us. There are some Islamic loan options and each has its own way of avoiding interest. Some of the well known are Guidance Residential, LaRiba and UIF. There exists some difference of opinion on their models, so I encourage you to do further research. While real estate is the most straight forward, but is costly to maintain (property taxes, repairs etc) and sell (~6% selling fee).

Bonds and CDs are not Halal since they are like a form of interest.

Commodities like gold is another straightforward investment to do, be it either by purchasing physical gold or purchasing stocks whose underlying assets is gold. Example tickers are GLD and IAU. But gold is not generally recommended for long term portfolio since its price is based mostly on speculation.

King of all streets

Stocks and mutual funds are the most liquid investments you can make but they are not as straightforward as real estate or gold. They must satisfy some criteria for them to be Halal. One of the requirement is that the companies do not deal with pork, alcohol, interest etc. Another requirement is the amount of debt a company has taken when compared to its assets/equity. The higher the debt, higher interest a company has to make. Hence to avoid dealing with interest, high debt companies are not Halal. I have discussed about Halal stocks here and Halal mutual funds here.

ETFs are similar to mutual funds but they have lesser fees. I could not find any Halal ETFs being offered in the USA.Except that IAU and GLD are two gold metal related ETFs.

REITs are special stocks that deal with real estate assets. These too have to satisfy the same criteria as described earlier to be Halal.

Cryptocurrencies are the latest investment class that has got all the craze. Most of the scholars consider it to be Haraam because they say Cryptocurrencies are not tangible assets and just a speculative instrument.

So, there you go. The various Halal investment choices you have to invest. Join our forum to discuss further on each of them and to let us know other new asset class that you think are worth looking at.

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