Halal Investing: The Basics
Everyone and their grandmother are worried about inflation these days, and they should be.
The thing's ripping through our hard-earned savings like a shish kebab.
The worst part isn't even that it's making things more expensive now - it's doing the same for the future too! That means you'll need to save more for retirement, save more to pay for your children's college education and more for whatever else you had planned.
If you aren't building your wealth, you're losing it.
This series is meant to be an actionable but approachable introduction, that helps you start actually building your wealth.
Building wealth is a skill that you can learn, yet it's so woefully under-taught. And you know what?
It's hard to find useful investing knowledge online. It's even harder finding any information on investing as a Muslim — which comes with it's own corpus of material that many people just find incredibly intimidating.
Halal investing is one of those things that can get unfathmoably complex, but when starting off you really just need to stick to 2 simple principles.
Two Rules for Halal Investing
1. Don't do anything stupid
Young investors are particularly susceptible to this, but it can afflict anyone. They jump into investing seeking the largest possible absolute returns - risk be damned. The problem with this approach is that you inevitably end up doing something stupid that wipes out your entire portfolio in an instant. Now, scarred by your losses, you walk about telling others that "investing is a scam" and that the only safe investment is putting bars of gold in a safe hidden under the staircase. At that point, you've gone full circle and turned into a gold-bug boomer.
Charlie Munger, right-hand to famed investor Warren Buffet, said it best:
It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
You're not trying to invent some new method of investing that earns you unspeakable returns.
This advice is especially difficult to follow today, when there are so many things that pass for "investing" (including a bunch of things more akin to gambling). Everything from speculating on crypto to yield farming, NFTs, complex options and financial derivatives.
Your goal, as someone just starting your investing journey, is not to chase "maximum returns". It's to avoid doing the stupid things that'll wipe you out.
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2. Keep it halal
Most "conventional" investors don't give a toss about how they make money -- just how much they made. To them, returns matter more than anything else.
For Muslims though, it does. We want to make absolutely certain that anything we invest in is pure and vetted. Think about it: no $ amount of returns is worth an eternity of punishment in the afterlife, no matter how large those promised returns are. You want your money to bring you peace of mind, not a hot seat in hell.
Some people might shrug, put their hands in the air and say "it can't be helped". All the institutions rely on interest in some way, and even "halal products" are just dressed up haram investments.
While this might be true in some areas, it's important to remember that you have a choice in what you invest in. You vote with your money -- and when you back bad companies, you're helping them grow and prosper - in turn causing more harm for both yourself and your society.
Can we know how halal a stock is?
Yes! There are concrete measures for determining the "halalness" of a given stock. We'll cover that in a future post.
The point is, turning a blind eye to what you invest in doesn't free you from blame - it just makes you ignorant.
Now that we've established the basic rules, let's go over the different types of investments you can consider when deciding where to start.