According to Pew Research Center, Muslims are 1.1% of total population of USA. Some of them are about to reach retirement and thinking about retirement plans and investments that conform to Islamic finance. Islamic finance is a growing industry, there are about 25 Islamic institutions operating in the United States. Most of them are offering Individual retirement plans that can offer investment vehicles to reach financial goals. Thew New York Times wrote an article explaining into more details what are considered halal investments and how they conform to Islamic guidelines. Read: Retirement Savings, the Muslim Way Here are a few tips on retirement planning for the Muslim community:
Start by investing in tax advantaged retirement plans (IRA, Roth IRA)
The early you start the better it is! You can use Individual Retirement Accounts such as Traditional IRA’s and Rorth IRAs to help you reach your financial goals. You can learn more about there retirement accounts in What is the Difference between IRA’s and Roth IRAs.
Financial institutions like Bank of Whitter, Imaan funds and Azzadfunds are offering individual retirement account in the United States according to Islamic Shariah. These funds follow halal investing guidelines established by AAOIFI (the Accounting and Auditing Organization for Islamic Financial Institutions).
We screen all potential investments to exclude companies that profit from interest, alcohol, tobacco, gambling, pornography, weapons, prisons, war and international conflict, hydraulic fracturing, and other areas that cause societal or environmental harm. Companies with high debt ratios are also excluded. Azzad Funds
Islamic mutual funds
Like other mutual funds, In Islamic mutual funds investors contribute capital with the purpose to earn profit. The difference is, these funds are interest free and invested in those business concerns which are allowed in Islam.
One of the popular Islamic mutual funds in the USA is Amana Income Funds (AMANX) and Amana Growth Funds (this fund is introduced by Saturana Capital, company based in Bellingham). AMANX focuses on short term profit. Profit is frequently shared with the investors in the form of dividend. Stock is invested in companies like; Microsoft and 3M. Whereas, if you want to invest for long-term then AMAGX mutual funds invest in those companies whose stock price will go up in the future. Examples are Apple, Cisco and Intuit.
Other than Saturana Company, Azzad mutual funds are operated by Azzad Asset Management. This company is based in Washington DC with Azaad Ethical Funds(ADJEX) and Azzad Wise Capital Fund(WISEX).
AMANX price chart
Islamic exchange traded funds
Alongside Islamic finance, Islamic exchange traded funds have captured its market in a short period of time. With the strong presence of conventional ETF’s, Islamic ETF’s found their place since February 2006 when it was introduced by Dow Jones. These indexes are under Islamic principles and overseen by Shariah committee. Shariah committee consists of Muslim scholars and auditors which ensure Islamic ETF’s are managed under strict principles and practices.
Rather than investing in few companies, EFT’s are backed by the investments in the entire universe of stocks. Other benefits are, it offers low-operating cost, tax efficiency and flexible trading.
iShares MSCI World Islamic UCITS ETF, iShares MSCI USA Islamic UCITS ETF and iShares MSCI EM Islamic UCITS ETF continued to provide investors with exposure to equities, while offering compliance with Shar’iah principles.
Sukuk-Islamic Bonds
Where USA T-bills yield are 2.86% [3], Islamic bonds are offering yield between 3% to 8%.Why Islamic bonds? Western bonds are debt instruments but Islamic bonds are backed by tangible assets, services and business projects. As per Islamic finance rules, Sukuk bonds pay a fixed rate of return but the monthly income will differ due to revenue earned through underlying asset.
If you want to invest for long-run then Dow Jones Sukuk Total Return index is an optimal choice. The market added 13 new Sukuk with total amount of USD 20.75 billion. Below is the latest performance chart of Dow Jones Sukuk:
| Index | 1YR Return | 3YR Return |
| Dow Jones Sukuk Total Return Index | 4.47% | 3.34% |
| Dow Jones MENA Sukuk Index | 3.40% | 2.98% |
| Dow Jones Sukuk 1-3 year Total Return Index | 2.37% | 2.24% |
| Dow Jones Sukuk 3-5 year Total Return Index | 2.87% | 2.63% |
| Dow Jones Sukuk 5-7 year Total Return Index | 3.98% | 3.55% |
| Dow Jones Sukuk 7-10 year Total Return Index | 7.36% | 4.89% |
FinTech
This is by no means an exhaustive list of investments that adhere to Islamic Guidelines, but should give you an idea of the available portfolios that faith based investors can create to support their retirement goals. There is even financial technology firms, or robo-investors, that have designed optimal portfolios that can tailor your investment to your retirement goals. “Our Halal Investing portfolio is a simple and low-cost way to grow your money for the long term, while complying with Islamic investing principles.” explains Wealthsimple introducing Halal Investing.
Leave a comment bellow with your experiences with Halal Investing and adhering to retirement and investment planning based on Islamic Guidelines.
