Halal Investment Strategies: A Guide To Getting Started

Halal investing is an ethical approach to stock selection that adheres to Islamic principles. It involves investing in financial instruments and business ventures that are in accordance with Islamic law, also known as Shariah law. The term halal means permissible in Arabic and indicates that an investment adheres to Islamic ethical principles. This form of investing aims to generate financial returns while ensuring that the investor's activities are socially responsible and compliant with Islamic teachings.

Halal investing is based on four key principles: focusing on asset-based investments, avoiding riba (interest), steering clear of prohibited industries, and minimising excessive risk. It encourages a disciplined and conservative investment strategy, emphasising in-depth research and continuous monitoring of securities. While it may limit diversification opportunities, halal investing promotes a principled and thoughtful approach to building wealth.

The rise of halal investing is driven by increasing demand for Shariah-compliant investments, particularly among younger, socially conscious generations. The development of Islamic fintech platforms has also contributed to its growth, making halal investment options more accessible and convenient.

With a growing number of Shariah-compliant investment options available, halal investing offers a way for Muslims to grow their wealth while upholding their religious values.

Understand Shariah compliance

Shariah-compliant investing is a type of investment that must follow Islamic Law. It is also known as socially responsible investing due to its specific requirement to comply with Islamic principles. Shariah-compliant funds are one of many categories found in socially responsible investing.

Shariah-compliant investing is guided by four basic principles:

• Prohibition of Riba (interest or cost of capital): Muslims are encouraged to avoid any investment deals that involve paying or receiving interest as part of the financial terms. This is because, in Arabic, 'riba' means "to increase" or "to exceed", and interest is considered haram as it implies excessive compensation without an appropriate value exchange.
• Avoidance of Haram: Haram is an Arabic term in Islam that describes anything that is 'forbidden, inviolable or sacred' according to Shariah Law. In relation to social investment, this specifically refers to interest-bearing financial agreements, but it could also cover any loans or investments into sectors that cover forbidden activities, including gambling, alcohol, weaponry, and some meat-based trading.
• Socially Responsible Investments: Shariah-compliant investing lends itself to social investment because it emphasises the social impact delivered to beneficiaries by the investment, alongside any financial return.
• Transparency and Fairness: For repayable finance to be Halal (permissible) for investors and beneficiaries, transparency and fairness must be evident throughout every stage of the investment process.

Shariah-compliant investing is designed for the prevention of social harm and the protection of the individual. For example, lending money at high rates of interest is impermissible due to the risks of debt, inflation, and monopolising investment for the benefit of high-end investors.

Shariah-compliant funds have many requirements that must be adhered to. For example, the exclusion of investments which derive the majority of their income from the sale of alcohol, pork products, pornography, gambling, military equipment, or weapons. Shariah-compliant funds also require the appointment of a Shariah board, an annual Shariah audit, and the purification of certain prohibited types of income, such as interest, by donating them to a charity.

Shariah-compliant investing is open to non-Muslims, too. Investors of various faiths view it as an ethical form of generating wealth that benefits both their finances and their communities.

Choose a halal investment platform

When choosing a halal investment platform, it is essential to consider your investment style, experience level, and financial goals. Here are some popular platforms to help you get started:

Zoya

Zoya is a leading halal investment app that makes Shariah-compliant investments accessible and straightforward. It offers a clear and intuitive interface that allows you to screen stocks, build custom portfolios, and monitor investments with up-to-date Shariah compliance data. The app also simplifies the process of calculating and donating zakat for your portfolio. Zoya integrates seamlessly with brokerage accounts, enabling you to keep track of all your investments in one place. It is a top choice for DIY investors seeking a complete halal investing toolkit.

Wahed

Wahed is a digital investment platform offering Shariah-compliant portfolios tailored to various risk appetites and financial goals. It utilises a robo-advisory model to provide diversified investments across asset classes such as halal equity funds, sukuk (Islamic bonds), and gold. Wahed has a user-friendly interface and a low minimum investment of $100. The platform also manages portfolios and performs regular rebalancing to align with each investor's preferred risk level. Wahed is ideal for those seeking a simplified, hands-off approach to halal investing.

Cur8

Cur8, developed by Islamic Finance Guru (IFG), is a unique investment platform that provides access to Shariah-compliant private market opportunities, typically reserved for institutional investors. It focuses on alternative asset classes like fixed income, real estate, venture capital, and private equity. Cur8 is designed for sophisticated investors seeking higher potential returns and willing to commit to longer holding periods. This platform offers a combination of steady income, long-term growth, and ethical alignment.

Sarwa

Sarwa is a UAE-based fintech company offering two services: Sarwa Invest and Sarwa Trade. Sarwa Invest functions as a robo-advisor, providing automated portfolios, including a Halal portfolio. Sarwa Trade is a trading platform that allows you to trade thousands of stocks and ETFs. Sarwa's Halal portfolios include Sharia-compliant ETFs across various asset classes. They offer seven different risk levels, and the minimum investment required is $500. Sarwa charges a small fee ranging from 0.50% to 0.85%, depending on the investment amount.

XTB

XTB is a global CFD broker offering Islamic trading accounts compliant with Islamic principles. The XTB Islamic account is available through XTB International and is accessible to clients from specific countries, including the UAE, Saudi Arabia, and Malaysia. They offer a wide range of CFD instruments, including Forex, indices, commodities, shares, ETFs, and cryptocurrencies, with minimal spreads. XTB provides dynamic trading experiences through its trading platforms, xStation5 and xStation, which feature advanced charting tools and indicators.

Wealthsimple

Wealthsimple is a commission-free investment platform offering three smart wealth management solutions: Wealthsimple Invest, Wealthsimple Cash, and Wealthsimple Trade. Wealthsimple Invest provides halal portfolios compliant with Islamic law and is certified and audited semi-annually by a board of Islamic researchers. Wealthsimple Trade offers self-directed investing, allowing you to buy and sell stocks and ETFs without trading commissions.

Robinhood

Robinhood is a widely recognised commission-free trading platform that offers a diverse range of investment options. While not explicitly labelled as a halal trading platform, Robinhood enables clients to use third-party screening services to identify companies that adhere to Sharia rules. It is important to conduct due diligence to ensure that investments are made in halal businesses.

Interactive Brokers

Interactive Brokers does not have an Islamic account, but if you trade using a cash account, you won't be charged any interest. Their cash account is Sharia-compliant as it follows specific rules, including no shorting of stock or futures day trading benefits. Interactive Brokers offers a comprehensive range of trading platforms, including a web-based Client Portal and the GlobalTrader Mobile app, providing advanced features and tools to meet diverse trading needs.

These platforms offer a variety of features and investment opportunities to help you get started with halal investing. Be sure to research and choose the platform that best aligns with your investment goals and risk tolerance.

Determine your halal investment strategy

Once you've familiarised yourself with the principles of halal investing, it's time to determine your investment strategy. This will depend on your financial goals, risk tolerance, and personal preferences. Here are some tips to help you develop a halal investment strategy that aligns with your values:

• Growth stocks vs. value stocks: Decide whether you want to focus on growth stocks, which offer high upside potential but may come with higher risk, or value stocks, which are often undervalued by the market and present good investment opportunities.
• Steady dividend-paying companies: If you're looking for a more stable income stream, consider investing in companies that pay regular dividends. These are typically established businesses that distribute a portion of their profits to shareholders.
• Diversification: Diversifying your portfolio across different sectors, market caps, and geographies can help reduce risk. Instead of putting all your money into one stock, spread your investments across a range of Shariah-compliant assets.
• Brokerage account: To buy halal stocks, you'll need a brokerage account. Look for brokers that offer features like Shariah-compliant stocks and ETFs, low or commission-free trading fees, and support for fractional shares.
• Investment platforms: Consider using specialised halal investment platforms, such as Zoya, which can make it easier to find Shariah-compliant investment opportunities and monitor your portfolio's compliance.
• Risk tolerance: Be mindful of your risk tolerance when developing your investment strategy. Avoid excessive risk and speculation, as these are generally discouraged by Shariah law.
• Research and due diligence: Conduct thorough research on the companies you're considering investing in. Evaluate their business activities, financial statements, and compliance with Islamic principles. Remember to pay attention to both the industry they operate in and their financial structure to ensure they meet the criteria for halal investing.
• Consultation: If you're unsure about any investment opportunities or need guidance, consult Islamic scholars or financial advisors who specialise in halal investing. They can provide valuable insights and help you navigate the complexities of Shariah-compliant investing.

Remember, halal investing is about more than just avoiding haram activities; it's about fostering a just, equitable, and responsible economy that aligns with your values and contributes to long-term financial growth.

Diversify your investments

Diversification is a cornerstone of intelligent investing. It is important to spread your investments across different asset classes, sectors, and industries to reduce risk and optimise returns. Here are some ways to diversify your halal investments:

Exchange-Traded Funds (ETFs)

ETFs are investment vehicles that pool money from multiple investors to purchase a diversified portfolio of securities such as stocks, bonds, and other assets. They are traded on stock exchanges, offering more flexibility as they can be traded throughout the day at fluctuating market prices. There are specific Shariah-compliant ETFs that invest in a basket of halal stocks, undergoing rigorous screening to ensure they abide by Islamic principles. These ETFs typically publish a list of their holdings, providing transparency for investors.

Mutual Funds

Mutual funds are a popular choice for those seeking to grow their wealth over time without needing expertise in managing individual stocks. Halal mutual funds are designed to comply with Islamic principles, giving peace of mind that your investment aligns with your faith. These funds are curated by professionals who ensure compliance with Islamic law, reducing the individual research effort required.

Real Estate

Real estate has long been considered a cornerstone of any well-diversified investment portfolio. It is crucial to ensure that any real estate investment is Shariah-compliant, such as by avoiding interest-bearing loans. There are also Real Estate Investment Trusts (REITs) that are Shariah-compliant, offering a less hands-on approach. However, caution is advised to ensure the REITs are not mortgage-based, as these are typically not allowed.

Stocks

Investing in stocks is one of the most popular forms of halal investment. When buying stocks, you are purchasing a small share of ownership in a company. To ensure Shariah-compliance, pay close attention to the company's business activities and financial ratios. The primary source of a company's revenue must be halal, avoiding industries such as alcohol, pork, gambling, and interest-based financial services. Additionally, examine the company's financials for high leverage and minimal income from interest and other non-halal activities.

Gold and Precious Metals

Gold and other precious metals are historically safe havens and viable investment options within halal investing. These metals have tangible existence and are not primarily based on speculation, meeting Islamic criteria of low uncertainty. However, there are nuances to consider, as some scholars believe that only gold and, to some extent, silver are permissible due to their historical use as currency and intrinsic value.

By diversifying your halal investments across these various options, you can reduce risk, optimise returns, and create a robust financial safety net.

Monitor and adjust

Once you've built your halal investment portfolio, it's important to monitor and adjust it to ensure it remains compliant with Islamic principles. Shariah compliance isn't static—it changes as companies evolve, so regular reviews are necessary. Here are some steps to help you monitor and adjust your halal investments effectively:

• Regular Portfolio Reviews: Conduct periodic reviews of your investment portfolio to ensure ongoing Shariah compliance. This includes assessing the business activities and financial ratios of the companies you've invested in. Look at their primary sources of revenue, debt levels, and interest income to ensure they remain within acceptable limits.
• Utilize Specialized Platforms: Take advantage of specialized halal investment platforms like Zoya, which offer comprehensive screening and monitoring tools. These platforms can automatically monitor your portfolio and send you timely alerts about any changes in Shariah compliance.
• Stay Informed: Stay updated on news and developments related to your investments. Follow industry trends, keep track of companies' performance, and be aware of any changes in their business practices or financial health. This proactive approach will help you identify potential issues early on.
• Adjust and Reallocate: If you find that certain investments no longer align with Islamic principles, be prepared to make adjustments. This may involve selling or divesting from non-compliant investments and reallocating your funds towards more suitable opportunities. Remember to consider the tax implications and transaction costs associated with any changes.
• Seek Expert Guidance: Consult Islamic scholars, financial advisors, or experts in halal investing to guide you in interpreting Islamic law and making informed decisions. Their insights can help you navigate complex scenarios and ensure your investments remain halal.
• Continuous Learning: Stay informed about new developments and trends in the halal investment space. The landscape of halal investing is evolving, and new opportunities and guidelines may emerge over time. By staying knowledgeable, you can make more effective decisions and identify new avenues for investment that align with your values.

Remember, monitoring and adjusting your halal investment portfolio is an ongoing process that requires dedication and a strong understanding of Islamic principles. By staying vigilant and proactive, you can ensure that your investments continue to align with your faith and values.

Frequently asked questions