Halal Investing for Beginners
Dividend investing for halal income, Islamic financing for property purchases and more.
A beginner Muslim investor must cover these three essentials to start investing:
Find investment opportunities.
Verify they are halal.
Open a trading account to invest.
Halal Investment Opportunities for Beginners: Basics
For new Muslim investors, we recommend:
Halal Dividend Stocks: Income investing is suitable for anyone seeking regular returns coupled with a potential for value appreciation.
Halal ETFs/Mutual Funds: These diversified investment pools managed by professionals are lower-risk, which implies lower returns too.
Property: Real estate can deliver decent capital gains (particularly if landed) and pay rental income as well (condos yielding higher returns).
Crowdfunded Property: Those who cannot afford to buy property outright may choose to buy smaller lots on crowdfunding platforms.
Halal Investment Opportunities for Beginners: Avoid
Commodities: Trading commodities for profit as opposed to hedging risk is speculation which is outlawed in Islam. (Genuine hedgers can make use of Shariah compliant futures products that have been developed not long ago.)
Cryptocurrencies: Although Muslims seem to have become more accepting of digital assets like Bitcoin and Ethereum, there is an opinion that cryptocurrencies entail too much ambiguity and too much volatility to be Islamically acceptable.
Deep Value or High-Growth Stocks: Even when halal, these categories of stocks can hardly be called beginner friendly. Deep value stocks may be cheap but often represent low-quality companies in unpopular industries which, under poor economic conditions, are more likely to fail. Meanwhile, overpriced high-growth stocks tend to eventually revert to the mean, with some crashing spectacularly.
Halal Investing for Beginners: How to Determine if an Investment is Halal
Halal Screening for Stocks
Business activities of a company should be permissible and any non-permissible activities (such as alcohol, gambling or interest) should not contribute more than 5% to total revenue.
Interest-bearing loans and deposits of the company must each constitute less than 30% of market capitalisation (according to standard-maker AAOIFI) or of total assets (according to Shariah advisors of index providers MSCI and FTSE).
Halal Screening for Property
First off, the property being bought has to be used for permissible business activities. Secondly, most real estate transactions involve external financing which in the case of conventional interest-bearing loans are not considered halal.
Shariah compliant financing products, where they are available, are usually structured around these Islamic contracts:
Ijarah/Hire Purchase: The asset is rented for a set period until the property title is transferred to the buyer.
Musharakah/Equity Partnership: The buyer pays rental to the financier-cum-partner, proportionate to the buyer’s increasing ownership stake.
Murabahah/Resale of Asset: The financier purchases the property first and then sells it to the buyer at a profit.
Halal Investment for Beginners: Takeaways
If you are just starting out, you may want to keep a few things in mind:
Timing the markets is difficult but it is easy to lose out on good opportunities if you are not ready to invest. Get the logistics down early: open a trading account and keep putting money aside for investment purposes.
Have clear goals and stick to them. For example, if you aim to earn income, do not be tempted into growth investing during market highs. This could lead to losses when the momentum falters.
Start investing, whatever you can. Merely saving money will not grow your wealth. Start small and keep seeking new investment opportunities.
All set? Explore Tayyib Finance for actual examples of halal investments, like these:
Halal AI Stocks That Also Pay Dividends
Generative artificial intelligence has been all the rage recently. That has not been lost on the investing world. While a few of the large AI stocks are not Shariah compliant (or questionable) — like Microsoft, Alphabet, Meta and IBM — plenty are halal, which allows Muslim investors to ride the trend as well.
A Halal Dividend Stock in Focus: Is Singapore Airlines a Buy?
Being a highly sensitive and cyclical business, airlines is an equivocal investment. Some names, however, have proven to be more resilient than others in the long-term.
Halal Investment Options: Grow Your Wealth with Islamic Finance
Islamic finance encompasses a lot of things but deals primarily with asset financing and wealth management. The focus in this post is on Shariah compliant ways of wealth creation.