Halal Investing for Beginners: How to Start, Grow and Scale Your Halal Investment Portfolio 9781394178049, 9781394178056, 9781394178063, 1394178042

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Halal Investing for Beginners

Halal Investing for Beginners

How to Start, Grow and Scale Your Halal Investment Portfolio Ibrahim Khan Mohsin Patel

This edition first published 2023 Copyright © 2023 by John Wiley & Sons, Ltd. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions. The right of Ibrahim Khan and Mohsin Patel to be identified as the authors of this work has been asserted in accordance with law. Registered Office(s) John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK Editorial Office The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK For details of our global editorial offices, customer services, and more information about Wiley products visit us at www.wiley.com. Wiley also publishes its books in a variety of electronic formats and by print-­on-­demand. Some content that appears in standard print versions of this book may not be available in other formats. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. Limit of Liability/Disclaimer of Warranty While the publisher and authors have used their best efforts in preparing this work, they make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives, written sales materials or promotional statements for this work. The fact that an organization, website, or product is referred to in this work as a citation and/or potential source of further information does not mean that the publisher and authors endorse the information or services the organization, website, or product may provide or recommendations it may make. This work is sold with the understanding that the publisher is not engaged in rendering professional services. The advice and strategies contained herein may not be suitable for your situation.You should consult with a specialist where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. Library of Congress Cataloging-­in-­Publication Data is Available: ISBN 9781394178049 (Cloth) ISBN 9781394178056 (ePDF) ISBN 9781394178063 (ePub) Cover Design: Wiley Cover Image: © Daisy and Bumble/Shutterstock Author photos: Courtesy of Ibrahim Khan and Mohsin Patel

To our patient, superhuman wives, without whom nothing would ever happen half as well in our lives, and to our wise parents, who pushed us at the right times and hugged us at the right times – may Allah reward you all immensely.

Contents

Forewordix Acknowledgementsxi About the Authors

xiii

Introductionxv

PART I The Basics of Investing and Personal Finance

1

Chapter 1

Personal Finance Essentials

3

Chapter 2

Breaking Even

5

Chapter 3

Islamic Wills

Chapter 4

Pensions 17

Chapter 5

Your Rainy Day Fund

21

Chapter 6

Going Halal for the First Time and the Purification of Wealth

27

13

vii

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Contents

PART II How to Develop Your Investment Strategy

35

Chapter 7

Your Investment Mindset

37

Chapter 8

Building the Blocks

51

Chapter 9

How to Do Basic Due Diligence into an Investment Company

71

Chapter 10 Tax-Saving Strategies

77

Chapter 11 Weighing up Risk and Reward

81

PART III Investment and Sharia Considerations for Popular Investment Categories

87

Chapter 12 Stocks 89 Chapter 13 Fixed Income

121

Chapter 14 Alternative Assets

153

PART IV How to Construct a Robust Portfolio

211

Chapter 15 Portfolio Theory

213

Chapter 16 Case Study: Conservative

221

Chapter 17 Case Study: Moderate

225

Chapter 18 Case Study: Aggressive

229

Parting Thoughts

231

Notes 233 Continuing Your Education

243

Helpful Resources

245

Index247 

Foreword

While Islamic finance has grown at an institutional level around the world, it has often been underserved at a grassroots level. The average person still has questions about what Islamic finance is, how it differs from traditional finance, and why they should invest in sharia-­compliant products.There are several impediments to the growth of Islamic finance in the UK, including regulatory, political, and access to sharia-­compliant capital, as well as a lack of human resources. One significant barrier that is frequently overlooked is a lack of Islamic financial literacy. This is an area in which Islamic Finance Guru (IFG) has excelled. What began as a blog has grown into a global platform with millions of beneficiaries worldwide; IFG has become a household name in Muslim personal finance. Throughout this journey, I consider myself fortunate to have kept in touch with and collaborated on various projects and initiatives with my two dear brothers, Ibrahim Khan and Mohsin Patel. Their work is truly legacy-­building, and I pray that they see the fruits of their efforts and hard work in the Eternal Life. It was only a matter of time before they were approached by a major publisher to write about Islamic finance, so this book comes as no surprise. I read through the book and was very pleased with the hands-­on approach it provides. It greatly simplifies investing and provides people with a road map for navigating the halal investing world. This book is more than just a theoretical write-­up; it is the culmination of years of deep learning, insights, and personal experiences. This book is both a “hack” and an “accelerator”; it is thousands of hours of learning condensed into a few hundred pages. ix

x

Foreword

It will truly save people years of learning time and fast forward their journey into the world of halal investing. Ibrahim and Mohsin have curated a ­powerful tool to educate this generation of Muslims about halal investing. May God accept my dear brothers’ efforts and take them from strength to strength in facilitating halal globally. Mufti Faraz Adam Amanah Advisors

Acknowledgements

We would like to thank the IFG team – particularly Sarah Brooking – for their support throughout the writing period, countless evenings of reviews and edits, and for working so tirelessly on our mission to level up Muslims financially. A sincere note of thanks to Mufti Faraz Adam who has been a quiet, thoughtful and dynamic font of wisdom to us for many years, and for taking the time to comment thoroughly on this book as well. And, finally, a thank you to the entire Wiley team for seeing the potential and then making this all happen in such a professional, seamless way.

xi

About the Authors

Ibrahim Khan is the CEO and co-­founder of Islamic Finance Guru and its sister company, Cur8 Capital, one of the most prominent Islamic investing platforms globally. He read Philosophy, Politics, and Economics at the University of Oxford, then went on to specialise in Islamic finance through a Master’s and a traditional Alimiyyah degree. He worked for a number of years in corporate law, first for Ashurst and then for Debevoise & Plimpton. He holds a Diploma in Investment Advice & Financial Planning and a Certificate in Investment Management. He is based in London. Mohsin Patel is the COO and co-­founder of Islamic Finance Guru and Cur8 Capital. He read French and Russian at the University of Oxford. He subsequently specialised in Islamic finance through an Islamic Finance Diploma. He worked in corporate law at Squire Patton Boggs, before going full-­time at Islamic Finance Guru in 2019. He holds a Diploma in Investment Advice & Financial Planning and a Certificate in Investment Management. He splits his time between the UK and the UAE.

xiii

Introduction

I first realised there was a problem when a financial advisor approached me about managing my money.1 I was working as a trainee in corporate law at the time and invited him into our plush London offices. This didn’t disconcert him in the slightest – he was very familiar with these sorts of settings. He walked me through his beautiful models. I should be accumulating in my youth and decumulating in my retirement. Pensions were good, as was insurance. Financing should be used strategically as a tool throughout my life to smooth out purchases and get onto the property ladder quicker, and tax-­efficient investments should be used to build my nest egg. This was all brilliant and made perfect sense to me. I was ready to go full-­on Wolf of Wall Street – but there was one big catch. Literally nothing he had offered to me was sharia-­compliant. I rang my best friend and long-­ time business partner Mohsin that evening. “We need to figure this one out, Mohsin. We’re going to have savings soon and we need to manage them properly. And it’s completely barmy that in a twenty-­first-­century world a quarter of the world’s population still doesn’t have financial products that they can actually use.” Mohsin agreed and, in an evening of discussion, debate, and idea creation, Islamic Finance Guru (or IFG) was born: a blog to share our research into halal investing and personal finance.2 Thus started an eight-­year journey (to date) of research, discovery, and building financial products that helped scratch our own itch. In that time, xv

xvi

Introduction

we gained Islamic qualifications, sat our financial advisor exams, qualified as corporate lawyers, got married, and had kids. Today, only through the grace of God, IFG is one of the most promin­ ent Islamic investing websites globally, with its own suite of financial tools and investment products. Over this journey, we’ve had the privilege of interacting with thousands of Muslims also on the same path as us. We’ve interacted with students just starting out on their journey, single mums looking to stabilise their finances after a divorce, a scam victim who is fearfully looking to invest again for the first time, billionaires who made their money in crypto, and – because we deal mostly with Muslims – lots and lots of doctors. Despite the variety of these backgrounds, these individuals actually had a lot in common when it came to the challenges they were facing in their investment journeys. These challenges were: 1. Wondering what is halal or haram in the investment world – from the most basic products to the most complex. 2. Being keen to learn about personal finance and investment strategies that were sharia-­compliant. 3. Looking for advice, coaching, and guidance on their investments. 4. Wanting to understand what halal investment options there actually were for them to take up. Much of our content on IFG and in this book has been inspired by the questions we’ve received over the years from our audience members. We have written hundreds of thousands of words, shot over 150 videos, and given talks up and down the UK and abroad on these topics. But what we had never done till now was condense it all down into one neat package. This book is our attempt at doing just that. It is a distillation of all those conversations, articles, videos, and lectures  – suffused with a healthy dose of practicality to get you moving from “learning” to “doing”. We hope you enjoy it and learn something new.

The Why But before we dive into the action, it is important to remind ourselves what is at stake here.



Introduction

xvii

The religious texts are very clear – hoarding and passively sitting on cash are frowned upon. The Qur’an says, “But as for him who is stingy and self-­satisfied, and denies the good, We will pave his way to difficulty.”3 More broadly, zakat is a 2.5% compulsory charitable donation on every Muslim’s stagnant wealth every year. Interestingly though, zakat does not generally apply to investments. In other words, zakat is effectively a wealth tax, encouraging the circulation and investment of money, rather than it sitting in cash. We can see therefore that the sharī‘a – the Islamic legal code – has always been pro-­investment. But today this message has taken on a particular urgency. According to an annual report on global wealth by Credit Suisse,4 the global average net worth at the end of 2021 was $87,489, a staggering 12.7% increase from 2020 and the fastest annual rate of growth ever recorded. Some quick back-­of-­the-­napkin analysis of their numbers, accounting for Muslim populations, indicates that global Muslim net worth is approximately $16,702. In other words, the Muslim community is approximately five times poorer than the rest of the world. This can be seen in Figure 0.1.

Wealth levels (USD) Below USD 5,000 USD 5,000 to 25,000 USD 25,000 to 100,000 Over USD 100,000

Figure 0.1  Global wealth. Source: Davies et al., 2022 / Credit Suisse Group/ Public Domain.

xviii

Introduction

With the exception of some of the smaller Gulf States, much of the Muslim-­majority country belt stretching across North Africa and across the Middle East and subcontinent has wealth in the lowest two bands.This puts the task ahead of the Muslim community in a rather different light: we must look after our wealth not just for ourselves, but the greater good. This is particularly so for the most affluent Muslims. As can be seen in Figure  0.2, the top  13% of the population owns 85.9% of global wealth. That means that if you’re reading this book and are lucky enough to be in that bracket, there is an additional onus on you to ensure your wealth is (1) invested and growing; and (2) allocated to investments that do more than just give profit. We actually ran the numbers on what it would take for the Muslim community as a whole to get back to a level financial playing field, and what we found was that if every Muslim earned around 12% per annum on

62.5 m (1.2%) > USD 1 million USD 100,000 to USD 1 million

USD 10,000 to USD 100,000