Meet Wahed – Your Halal Robo-Advisor

Investing can involve a lot of work, with the investor having to research stocks, review financial statements, and check out various financial ratios to ensure that the investment is a wise choice. For a Muslim investor, it can involve even more work to make certain that the investment is halal, or Islamically permissible. For example, before buying shares of stock in a company, a Muslim investor has to check if the company’s core business clashes with Islamic principles (i.e. an alcoholic beverage company), and confirm that the company doesn’t have too much leverage (i.e. debt).

There are some of us who want to invest and grow our wealth by putting our money to work, but don’t exactly have the time or desire to do the research required. One option is to hire a financial advisor and pay them a commission to do the work. Yet another option, and one that is growing in popularity, is the use of robo-advisors.

In short, the investor provides the robo-advisor with some information — such as time horizon and aversion to risk — and the automated advisor will then apply algorithms to determine what mix of investments would be suitable for this investor. It will then apply the investor’s funds to that investment mix. The investor won’t have to worry about buying individual stocks or paying a brokerage fee for each trade. The robo-advisor essentially does all the legwork.

Pretty cool concept, huh? Even cooler is that there is now a Muslim robo-advisor called Wahed. As with other robo-advisors, the investor provides information and Wahed will come up with an optimal portfolio of investments. The beauty is that Wahed will automatically filter out certain industries like gambling and alcohol, as well as interest-based investments like conventional bonds.

Depending on your risk assessment, Wahed will allocate your funds accordingly. For example, if you want to take a more conservative and safe approach, the majority of your money will be invested in fixed income investments. This is referring to sukuk, or the Islamic equivalent of a bond. The return on investment won’t be very high for fixed income investments, but they are far less likely to lose value and at least protect against inflation.

On the other hand, if you are young and want to take a more aggressive approach to investing, more of your money will be invested in equities. This will include stocks for medium and large corporations, plus dividend-paying stocks. A good portion of money may also be allocated to commodities, which refers to metals, agricultural products (i.e. rice, grains), or raw materials. These types of investments are more volatile and will see more price fluctuation, but provide the potential for higher gains.

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Of course, using a service like Wahed is not free, but will likely cost an investor less than a human financial advisor. The nice thing is that Wahed “wraps” all fees related to investing (i.e. investment advising, transaction fees for buying/selling) into one fee. If you have less than $50,000 US invested with Wahed, it will charge a management fee of .99% annually, which is in line with the management fees of many mutual funds. There are cheaper robo-advisors, but they are not designed to filter halal investments.

If you have more than $50,000 invested with Wahed, the management fee will decrease, as low as .29% annually. To give you an example, if you invest $1,000 with Wahed and the total value reaches $1,100 by the end of year one, Wahed will take the total asset value of $1,100 and deduct .99% to cover its fees for managing the account. In this case, that would be 1100 * .0099 = $10.89.

If this sounds like a good investment service for you, check out Wahed’s website to register and fill out the assessment form to get started. If you are new to investing and want to learn the basics, check out my Kindle book, The Stock Market Made Simple.

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Investroo: Invest Without Compromising Your Values

If you’d like to invest in the stock market but feel overwhelmed by the task of sifting through myriad stocks to find one that’s ethically- or Islamically-acceptable, fear not. A new tool is on its way — Investroo.

What is it? Investroo is not another online brokerage like TD Ameritrade or E*Trade. Rather, it’s a mobile application that provides investors with an interface through which to browse ethically-sound stocks on U.S.-based exchanges.

Investroo does the legwork of screening out companies in certain industries (i.e. alcohol, casinos, weapons) and based on financial data (i.e. highly-leveraged firms). The launch version of the app will only display compliant stocks, although a future version will allow users to subscribe to a non-compliant stock and be alerted if/when that stock becomes compliant.

The app will categorize stocks by sector and by social theme, making it easy to find a stock you’d like to invest in. And because it’s app-based, you can invest anytime, anyplace. Trades are expected to be just 99 cents each.

What’s more, the app will enable investors to purchase fractional shares. So if you want to buy stock in, say, a tech company whose stock price is over $100 per share, no worries. Investroo will allow you to purchase a fraction of a share for as little as $5.

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If you’re not quite ready to throw cold, hard cash into the stock market, the app will even feature a simulated trading environment in which you can practice and build a virtual portfolio. Look for Investroo to launch this fall. Sign up for updates at investroo.com.

To learn more about investing in the stock market, check out my e-book The Stock Market Made Simple on Amazon.

Charity Does Not Decrease Wealth

In Islam, we believe the charity does not decrease one’s wealth. We also believe that it’s our duty to help our fellow human beings out of the blessings God has bestowed on us. Prophet Muhammad (peace be upon him) stated:

“Charity does not in any way decrease the wealth and the servant who forgives, Allah adds to his respect; and the one who shows humility, Allah elevates him in the estimation (of the people).” (Sahih Muslim)

Hence, I’m proud to announce that half of all royalties from the sale of my book will be donated in charity, insha’Allah.

Halal vs. Haram Investment Choices

Muslims should strive to have earnings that are pure. This means that the money one earns comes from halal sources, without gambling, and without cheating or scamming anyone. Money can’t be earned by working for, or running, a company that provides a forbidden product or service. This would include, for example, alcohol, pornography, and pork, among other things. Additionally, interest, or usury, is prohibited in Islam, so earnings can’t come from giving out loans or interest-based investments.

As far as investing, let’s first look at some examples of what is not considered halal. Bank products are typically not allowed. For example, savings accounts, money market accounts, and certificates of deposit are all interest-based. In short, each of these investment options involves the individual giving money to the bank which the bank turns around and loans out to others. The bank earns its own interest, and gives a small cut of the profits to the individual.

Bonds are not allowed either. This includes both Treasury bonds and corporate bonds. Bonds are basically loans that the investor makes to the government or to a company, and that entity makes an interest, or coupon, payment to the investor.

So what is allowed? Trading stocks is permissible, but you do have to be careful. It’s not allowed to buy stocks for companies that produce products or services forbidden in Islam. Plus, you have to review the company’s leverage, or how much debt it has, as well as the company’s level of liquidity, or how much cash and cash equivalents it holds.

Real estate is also allowed. This can be either as a house that is purchased, fixed up, and sold at a profit; or, a home that is purchased and rented out to others for an income stream.

Sukuk, or Islamic bonds, are another option. I have a separate post that explains what sukuk are.

Additional options include venture capital, or investing in other companies, jewelry and precious metals, as well as fine art and collectibles. If & when those things go up in value, the investor can sell.

A couple of investment choices that I consider gray areas are commodities and foreign exchange. The problem with commodities is that they’re a speculative investment and might take advantage of others’ economic hardships. Also, commodities investing is often done via futures contracts, which I consider to be like gambling. As for foreign currency (or FOREX) trading, it’s not forbidden, but it’s typically done via leverage, or money that’s loaned to the investor by the broker.

This was a very brief overview of investment choices, but to find out more detail, check out my book: Open the Door to a Wealthier Life. It’s available on Amazon in paperback and Kindle format. Thanks for reading.

Islamic Home Financing: How Does it Work?

Have you ever wondered how Islamic home financing options like University Islamic Financial and Guidance Residential work, and how they are different from conventional interest-based mortgages?

First, let’s review how conventional mortgages work. The home buyer takes out a loan with a bank, for instance, and a fixed or adjustable interest rate is applied based on various factors. The monthly mortgage payment is made up of principal, which is the actual cost of the home, and interest. Earlier in the life of the mortgage, interest makes up a greater proportion of the mortgage payment. As the loan progresses, a greater proportion of the loan is principal.

Now let’s look at Islamic home financing.

With University Islamic Financial, or UIF, they buy the home on the individual’s behalf by paying 100% of the purchase price. Then UIF marks up the price and sells it back to the individual who actually wants the home. UIF basically provides an interest-free loan to the homebuyer. It factors in its profit up front and calculates equal monthly payments for the individual to make.

Guidance Residential has a different model called the Declining Balance Co-ownership Program. It’s easier to explain with an example. Suppose someone wants to buy a home that costs $100,000, but only has $20,000 saved up. Basically what happens is that the home buyer enters into a partnership with Guidance. The individual puts down $20K, and Guidance covers the rest. The home is now co-owned by the individual and Guidance, with the individual owning a 20% share of the property and Guidance owning 80%.

Next, the individual begins to pay down the $80K balance that Guidance currently owns. The payments may go through a bank, but the bank simply acts as a bill collector and forwards the payments to Guidance. Over time, the home buyer’s share of the property increases, while Guidance’s share decreases.

For helping the individual purchase the home, Guidance does charge what it calls profit, for use of the property. You can think of this as rent. Guidance owns a chunk of the property, but is allowing the actual homebuyer full use of it.

I hope this helps clarify how Islamic home financing works. To learn more about purchasing a home for personal use or as an investment, along with many other topics related to building wealth in a halal way, check out my book, Open the Door to a Wealthier Life. It’s available on Amazon in paperback and Kindle format. Thanks for reading.

Open the Door to a Wealthier Life

As-salaam-alaikum and welcome to my blog.

As Muslims, we have restrictions on how we can earn and invest money. It may seem like we are limited in our options, but in reality, the purpose of prohibitions is to keep us from harm. Plus, it actually simplifies things.

If you are looking for halal ways to make money and halal investing opportunities, you’ve come to the right place. I recently completed my book, Open the Door to a Wealthier Life. I not only explain how to get started in investing based on Islamic and ethical principles, but so much more.

What you will learn:

  • How to enhance your skill-set
  • How to maximize your income
  • How to minimize your expenses
  • What investment choices are available
  • Why to even bother investing your money
  • The difference between various investments
  • Which investments are considered halal and which are not
  • How to get started in investing on your own with minimal cash
  • How to finance a home without paying interest
  • How to prepare for retirement

A wealth of information awaits. Are you ready to open the door?

My book is available on Amazon in paperback or Kindle format.

Click here to purchase the paperback version.

Click here to purchase the Kindle version.