3 Reasons Why You Should Choose Halal Investing

Why Halal Investing? It is a question that occurs to a lot of Muslim investors, especially at the beginning of their investing journey.

1. Religious Beliefs

The first is self-evident: religious beliefs. When it comes to things we consume, from food to investments, we have certain expectations. The same way we avoid haram products like pork, alcohol, and so on, we should do the same with our investments.

  • Riba

First and foremost, we want to avoid riba. Riba, or usury, is the Islamic term of interest, and you want to avoid it in everything you do, from day-to-day banking transactions to more exotic investment products. When engaging in Riba, the Quran warns, “Beware of war from Allah (s.w.t)and the Prophet (s.a.w), When you engage in Riba.”

  • Haram Industries

We want to avoid haram industries in addition to riba. Such as gambling, alcohol, tobacco, and weapons. As a result, due to our religious beliefs, we want to avoid these prohibited industries when it comes to investing.

  • Gharar and Maysir

Gharar, which is uncertainty, and Maysir, which is gambling, are two things we should avoid in our investments. As Muslims, we want to stay away from doing these two things. As a result, many investment products available to us have been severely limited. Futures and options are examples of derivatives that are deemed to contain the elements of gharar and maysir.

2. Performance

Naturally, a halal portfolio avoids many of these forbidden industries in which we do not want to participate. Alcohol, tobacco, conventional banking, and finance are just a few examples. They are typically not in the halal portfolio due to riba. As a result, when there are significant market shocks, the stocks that comprise a halal portfolio often perform significantly better.

Some of you may have heard people say, “Oh, you know, halal investing doesn’t do well.” You won’t be able to make as much money as you would in a traditional portfolio.”

While this may not always be the case. Because a conventional portfolio can leverage or borrow a lot of money. However, a halal portfolio still makes money without leverage. That’s the key.

For your illustration, if you believe that if you put a dollar into a conventional portfolio and make a 100% return, the halal portfolio, while not returning a 100% return, may return you 70% or 80%. This is still fantastic because 1) you are growing your money and 2) you are doing so in a halal manner.

3. Stability

Here’s the best part about Halal investing: When comparing the performance of an Islamic or Halal Portfolio to the overall market performance in 2008, the Halal Portfolios did not drop as much as the other portfolios. The best part about Halal investing is: When the performance of an Islamic or Halal Portfolio was compared to the overall market performance in 2008, the Halal Portfolios did better than the other portfolios.

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