Halal Investment Options: Grow Your Wealth with Islamic Finance

A primer to Shariah compliant investment opportunities for Muslim investors.

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.

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Halal Investment Option 1: Halal Stocks

There are three types of Islamic stocks Muslim investors can choose from:

1. Halal Dividend Stocks

These are popular among investors planning for retirement or looking to supplement earnings. Dividend stocks typically pay a fixed return which, with healthy companies, should grow over time. They can also appreciate in value depending on market conditions, offering additional return from favorable price movement. Of course, they can also depreciate, or lose value.

Drawbacks: The upside potential is normally limited; in the US, dividend income is taxable.

2. Halal Value Stocks or Growth Stocks 

These stocks are bought not for the regular checks in the mail, but for capital appreciation — which refers to an increase in the market value of a stock from the purchase price. Such stocks may have a good potential to increase in value, but they also carry a higher risk of dropping in value and causing financial losses.

Drawbacks: No steady income; high risk investments.

3. Halal Exchange-Traded Funds or Mutual Funds 

A safer bet for new investors is opting for a basket of stocks through an exchange traded fund or a mutual fund. Such diversification is aimed at reducing risk: holding companies in different industries, as opposed to concentrating money in a single sector, spreads risk and balances out price movements. That, however, does not hold during market corrections when the entire market falls.

The main difference between an ETF and a mutual fund is the level of management. An ETF is not actively managed: a basket of stocks is bought, put together as an ETF and sold to investors. The ETF manager will only rebalance the basket based on a set schedule. In contrast, a mutual fund is actively managed, with buy and sell decisions made on a day-to-day basis by the fund manager.

Note that with both ETFs and mutual funds, you can earn returns upon exit. If the focus is on income, they can also be dividend paying, minus the management fee and other expenses.

Drawbacks: Extra costs for fund management; limited growth potential.

Finding Islamic Stocks & Funds:

• Tayyib Finance (halaldividends.com): A monthly newsletter covering Islamic dividend stocks.

• Wahed Invest (wahed.com): A robo-advisor that manages portfolios on behalf of investors.

• Zoya Finance (zoya.finance): A stock screening tool providing Shariah compliance information.

Halal Investment Option 2: Real Estate

As long as used for permissible activities and financed Islamically, real estate is a quintessential Muslim friendly investment. One alternative to buying property directly is purchasing equity in real estate.

Crowdfunding Platforms 

For those without significant capital, crowdfunding platforms allow small investments in real estate, offering both fixed returns from rental appreciation and potential capital gains.

• Ethis (ethis.co): Offers fractional ownership of real estate, primarily in Indonesia. Projects do not provide rental income but a profit from the sale upon maturity. Typical project lifetime is less than a year. 

  • Drawbacks: No stable income; entry fee for some investments might be quite high compared to stock investments.

• Get Stake (getstake.com): Gives an opportunity to invest in property with as little as AED500 (~USD136) based on the concept of fractional ownership. You can earn both rental income and capital gains off your stake in the property. 

  • Drawbacks: High uncertainty; transferring funds into the UAE may prove difficult for some; since not all projects are halal, investors need to pick Shariah-compliant ones on their own.

• Invest With Roots (investwithroots.com): A US real estate investment trust (REIT) with a portfolio of residential rental properties around Atlanta, Georgia. Investors can benefit from rental income and property value appreciation. 

  • Drawbacks: Volatile real estate market in the US; exits possible only on a quarterly basis; no disclosure on the exact debt amount (which warrants additional research).

Halal Investment Option 3: Physical/Digital Assets

Long-term Wealth Growth in Islamic Finance

Another key aspect of Islamic finance is identifying assets that can appreciate in value, providing long-term wealth growth. There are two types of assets you can explore:

• Gold/Silver: Precious metals have historically been a store of value and can provide a hedge against inflation.

Where you can buy gold online: gold.org is audited by the AAOIFI, an international independent body for Shariah standards for Islamic financial institutions.

• Cryptocurrency: Digital assets can offer high returns although they come with significant volatility and risk.

Where you can buy cryptocurrency online: islamiccoin.net has its own Shariah advisory board which is a prerequisite for legitimate Islamic financial institutions.

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Disclaimer: Nothing you read on Tayyib Finance constitutes financial advice. Nor is there a guarantee of Shariah compliance of any particular stock at any particular time, since ‘Shariah compliance’ is fluid depending on the provider of judicial opinion and must be regularly affirmed. Do your own research.

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