Many of my Muslim friends and family members have little experience with investing, and some view it as risky and based solely on speculation. We created this website to address this misunderstanding and show that investing, when done correctly, can be a powerful source of wealth. And, since Muslims donate (at least) 2.5% of their wealth annually through Zakat, this translates directly into money in the hands of the needy.
There are a number of concerns that keep Muslim investors away from the stock market:
- Investing in stocks is haram
- You need to be a US citizen (or at least a resident) to invest
- You need alot of money to invest
- The taxes on your investments will wipe out any potential gains
- It's too late for me
Turns out, these are all wrong! 😲
Let's dive into each one of these, and talk about why that is.
"Investing in Stocks Is Haram"
It is a common misconception that investing in stocks is haram -- since the overwhelming majority of companies rely on some form of impermissible income to operate.
Turns out, that's just plain false. In fact, many Islamic scholars have issued fatwas stating that investing in stocks is permissible so long as the companies in question are not involved in activities that are considered haram, such as gambling or alcohol production.
Another common worry is that stocks are a form of gambling. This is also not the case. While it is true that there is some element of risk involved in investing in stocks, as there is with any investment, this does not mean that it is equivalent to gambling. Gambling is defined as ”the act of playing for stakes in the hope of winning (including the payment of a price for a chance to win a prize)” while investing is defined as ”the outlay of money usually for income or profit.” As you can see, the two activities are quite different.
"You need to be a US person to invest"
The truth is that anybody can invest in the stock market. You don't need to be a US person, you don't need to live in the US, and you don't need to be a US citizen. You just need to have a brokerage account with a broker that serves international clients. If you'd like to learn more about that, read our post on making your first investment.
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"You need alot of money to invest"
A common misconception is that you need a lot of money to start investing in the stock market. This is not true! You can start investing with very little money. In fact, there are many investment platforms that allow you to invest with as little as $1.
This makes it so much easier for you to get started, since you're not putting a large amount of money at risk. Starting with a small amount and learning while doing is the best way to get going, and it's never been easier!
Another common misconception is that you need to be an expert to invest in the stock market. This is also not true! While it is helpful to have some knowledge about the stock market, you can start investing in a popular fund in just a few minutes — buying a piece of the whole market is what many investing legends (like Warren Buffet) recommend you do.
"Taxes will wipe out my gains"
While it's true that you have to pay taxes on your investments, it doesn't mean that you won't make any money. In fact, some countries (most notably, those in the Middle East) don't require that you pay any taxes on profits that you earn from selling stocks.
We'll discuss taxes in detail in a future post, but you can reference this excellent post on the topic to learn more about the taxes you need to pay on stocks.
"It's too late for me"
In your 30's? 40's? 50's? Even if you're already retired, it's not too late!
The point of investing is to grow the cash you don't need so it appreciates over time. Keep what you need on hand, but just know that money kept in a bank account gets you, at best, 1% in profit (if you're lucky — most Islamic banks give you closer to 0.1%). While that sounds better than nothing, it's worse than the average global rate of inflation (2%). That means $100 kept in a bank account actually buys only $98 worth of "stuff" by the end of the year. The number you see goes up (I have $101 now!), but you're actually getting less in return.
Having $101 at the end of the year might make you feel better — but if it means you get $99 of stuff, it's still a loss!
In conclusion, there are several common misconceptions that prevent many Muslim investors from entering the stock market. These include the belief that investing in stocks is haram, that you need to be a US person to invest, that you need a lot of money to start investing, and that taxes will wipe out any potential gains. However, these beliefs are incorrect. Investing in stocks is permissible according to many Islamic scholars, and anyone can invest regardless of their citizenship or residence. It is also possible to start investing with a small amount of money, and taxes on profits from selling stocks do not necessarily mean that you will not make any money. It is never too late to start investing and take control of your financial future.
Looking for an investing app to help you start? Amal Invest is the first investing app designed for Muslims. With built-in Shariah screening, and fund purification -- it's the easiest way to begin investing as a Muslim. Learn more here