5 Tips on How to Invest in Stocks: A Guide for Muslims

How to invest in stocks? If you want to invest in the stock market but do not know how you come to the right place. In today’s article, we will give a brief guide for you to start halal investing and build prosperity without compromising your values.


What is stock investment?

When you invest in stocks, you buy shares of ownership in a public company. We call these small shares “company’s stocks.” Investors invest in those stocks expecting that the company’s value will go up over time. The shares you bought may become more valuable during the process, and other investors want to buy them from you for a higher price you initially purchased. This is the point where you gain profit.

When it is done in the right way, stock investing is one of the best ways of growing your wealth in the long term. However, there are a few things you should consider before starting investing.

How to Invest in Stocks?

1. Determine Your Investment Approach

As there are many approaches to investing in the stock market, you need to choose the most suitable one for yourself. One of the best ways to determine your investment approach is to try these statements:

  • I am a numbers person, I like math and doing deep research on numbers
  • I am not into math and calculations
  • I have a lot dedicated time to do stock investing weekly
  • I like to know more about companies I am going to invest, but I am not into doing math
  • I am a busy professioanl and I do not have to learn techniques of stock investing

No matter what statement exactly fits for you, you can still be a great stock investor, but your pathway could vary from others.

Some of the essential ways of investing in stocks is via creating the following accounts:
  • Open a brokerage account

If you already know the basics of investing, you can open an online brokerage account. A brokerage account is a financial tool that allows you to invest in the stock market. To distinguish them from tax-advantaged retirement accounts such as 401(k)s, they are sometimes known as taxable investment accounts. Online brokers or Robo-advisors can help you create a brokerage account.

  • Hire a financial advisor

Some investors want to consider experts’ guidance and advice when investing and committing to other financial goals. So they hire financial advisors, which can be an option for you. Financial advisors help you with specifying your financial goals. Moreover, they buy to manage your investments. However, they do not do it for free. They charge fees such as a yearly fee, per-trade fee, or a percentage from stocks they manage.

  • Robo-advisors

If you want a simple, inexpensive method for stock investing, Robo-advisors are for you. Robo-advisors manage your investments via investing your money in several ETFs. In addition, they purchase stocks for you as a part of portfolio management. Even if Robo-advisors are more budget-friendly than financial advisors, in some cases, live human answers to your financial questions are better.

  • Direct stock purchase plan

If you want to invest in a few equities, many blue-chip businesses provide schemes that allow you to buy their shares directly. Many programs offer commission-free transactions, but you may be charged additional costs if you sell or transfer your shares.

2. Know the Difference between Investing in Stocks and Funds

If you want to invest yourself, do not worry. It is not a very complicated path. Start with choosing which type of stock investment you are going to do:

  • Mutual Funds and ETFs: Mutual funds help you to buy small amounts of several different stocks in a single transaction. Index funds and ETFs are types of mutual funds that track an index; for example, a Standard & Poor’s 500 fund replicates the index by purchasing shares in the companies that make up the index. When you make an investment in a fund, you become owner of a little portion of each of those companies.
  • Individual Stocks: If you are interested in certain company, buy a single stock or several stocks of the company. It is possible that you can build diversified portfolio from differnt single stocks; However, it takes you a lot of time and deep research.

The advantage of stock mutual funds is that they are naturally diversified, which means you have a lower risk. A portfolio comprised chiefly of mutual funds is the obvious choice for most investors, particularly those investing for retirement.

3. Set a Budget

In the next step, determine your budget for stock investment.

  • How much money do you need to start investing? There are no strict guidelines on the exact amount of money should be and different trading platforms or investment products may have different minimum amount you need to spend. Some mutual funds, for example, have no minimum investment requirements, so you can invest as little as $5, $10, or $100.

We think you should get started as soon as you have the money saved up beyond the goals outlined in this post if you’re a new investor.

  • How much money you should invest in stocks?

Do not invest the money you might need in near 3-5 years. Here are the essential points you need to keep in mind when it comes to your budget:

  • Minumum budget for Mutual Funds; Usually, mutual funds investment requires minumum investment initial purchase amount
  • Comissions; In case your brokerage account charges commissions, you can try increasing your balance in order to purchase shares—especially particular stocks—until the commission represents only a small portion of your total investment
  • Fees for Mutual Funds; When acquiring a stock mutual fund, carefully check the “load” on the shares you’re purchasing. Some mutual funds impose an upfront or back-end sales charge, known as a load, when you purchase or sell shares. While not all mutual funds have loads, being aware of them before purchasing might help you avoid surprise expenses.
4. Choose the right stock

As a Muslim investor, the Shariah-Compliance of the stocks should be the most crucial component of stock market investing for you. To do stock screening by yourself, use the Musaffa platform, the most comprehensive halal stock screener in the world. Musaffa Screener – which would cover every existing stock in the world. Not only that, we guarantee that it’s the world’s most accurate halal stock and ETF screener. We deployed 110,000 stocks (tickers) already coming from 71 different stock exchanges across the globe to our platform. Just go to musaffa.com. On the first page, you can find a search button. Type any stock and check out its Shariah Compliance status.

5. Do Long-Term Investments

As the most successful long-term investor of all times, Warren Buffet says:

“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”

One of the main reasons for that mentality is quality businesses grow their value over time. Time, as Warren Buffett often stated, is a fantastic business friend. Fundamentals can take a long time to affect a stock’s price, and only the most patient investors benefit.

Feel free to sign up for our free stock screening services at musaffa.com.

To read more about Islamic Finance related topics, please click here and visit our academy.