Halal Investment Options for Muslims in Canada

I've always been a huge advocate of avoiding Riba(Interest), either earning or paying. There are definite financial, social and religious reasons for this and we, as Muslims, are aware of them.

There has always been a concern among the Muslim community in Canada of where they should put their extra money in terms of Savings or Investments, earn money from that or atleast hedge against the Inflation and other factors. Based on my knowledge and experience (Allah knows best), I was able to dart down the following investment opportunities available in the Canadian market.

But before I can list down all the available options, I want you all to have a basic understanding of Savings and Investments. (<<< Please click the link).

Investing in Commodities e.g. Gold and Silver

Gold and Silver have historically been the best source of securing your wealth over a long period of time. From my research of historical Gold prices, they have tripled in last 20 years. Silver is not far behind. Rather, silver has outperformed gold if we take different time ranges. So let's say you are not someone who has huge sums of money and can make big investments, investing in gold or silver is definitely an option for you. This is purely a halal investment and if you are looking to invest for a longer period of time, let's say saving money for your child's education, investing a couple of hundred dollars a month should not be difficult. This way you are preserving your wealth and, in the meantime, saving money for your child's education. You can buy gold from banks or can even purchase from an accredited gold dealer in Canada.

There are other commodities you can invest in but for a domestic investor it would be hard to store those commodities over a long period of time.

Investing in company Stocks i.e. shares

Basic reasoning as to why stocks are halal investments is as investors you will be rewarded with profits of the company and will also to have bear losses, if any. There are different types of stocks you can invest in based on your investment horizon i.e. time period you want to invest for and the amount of risk you can handle. Moreover, it also matters what kind of income stream you have in mind i.e. do you want regular dividend payments or you are more interested in Capital Gains (IPO's i.e. companies that are recently launching their stocks into the stock market, are best for Capital Gains).

Examples of stocks you can invest in as Muslims are:

1. Retail companies
2. Oil and Gas companies
3. Trading companies etc.

There is a list of type of companies we, as Muslims, should not invest in i.e. these won't be considered as Halal investments. Companies that primarily deal in:

1. Financial institutions i.e. banks, loaning companies
2. Alcohol
3. Pork and pork related products
4. Tobaco
5. Weapons and ammunitions
6. Entertainment

The list provided above is just an example and is not extensive.

As a normal person who does not have much knowledge about how to invest in stocks in Canadian Stock markets, best thing is to reach out to someone who knows. They may be your relationship managers at the bank, a Muslim scholar who has finance knowledge as well and knows financial markets or contact brokerage companies. You will need to make sure you have explained to them in detail the criteria for your investments i.e. type of companies you are looking into.

Some banks such as RBC Royal Bank give you an online account that you can use trade stocks online. For this you need to have reasonable knowledge of how stocks work and how to analyse an investment opportunity.

Land and property

If you have enough spare cash that you have saved over a period of time and looking to invest in halal options, property and land present another option for you. People do engage into buying houses through mortgage and increase their asset base, but that is definitely not a halal option. So, if you are someone who likes to avoid interest, you should not go into buying houses through mortgage.

Now there are 2 scenarios:

1. You have enough money to buy a house. In this case you should be on the look for best investment opportunities in terms of property and land. I've seen people usualy invest more into buying houses than buying land in Canada. This is not a bad option and is more secure. But investing in Land around the areas that have potential in terms of future growth and have developmental projects in the pipeline is something that can generate higher returns for you.
2. You don't have enough money to buy a house in Canada. In this scenario, since almost all of us are immigrants here, there is always an opportunity available in your country of origin. You can invest in smaller properties there and once you have collected enough money, you can bring it back here (if your goals is to own property in Canada).

Investing in new companies

A large number of Muslim business men/women want to start their new projects, they have good ideas but do not have the money to invest. You can find these people in your community or social networks and discuss about their ideas. If you have the financial knowledge, try and analyse their ideas, both in terms of practicality and future revenues. If you don't have the knowledge, have them create a business plan and then present that business plan to an investment advisor.

You can also create a pool of money with your friends, acquaintances and start a business that you normally can't afford. Investing in new projects i.e. businesses, is riskier than investing into an already running business but if weighed and measured properly and work hard on, can generate much better returns.

In the end, my knowledge is limited and above mentioned options are just suggestions, but I am hopeful they can give you an idea about investing halal and saving yourself from the curse of Riba(Interest). I'd be more than pleased to help with any of the above.

Oil Prices - Should I invest in Oil Stocks in Canada

We all know, especialy the people of Alberta, that oil prices have hit record lows and are bound to go further down for the next few months atleast. Many would have considered investing in oil stocks to reap higher returns at a later stage. That is not a bad idea at all and is definitely something investors should consider. BUT... here's another question. What sector of oil and gas we should invest in. To me, we need to look at this from another angle and rephrase the question as , "What sector of Oil and Gas has been affected the most".

We know services companies, such as drilling, have been affected the most. Now let's relate this answer to our previous question i.e. what sector of oil and gas we should invest in?. Answer is Service companies.

Let's talk about the reasoning of this answer:

Since service companies have been hit badly so the stock prices must be at the lowest, and we could wait few more months to get the best buying rates on stocks. Lower the cost higher the return, we all know that rule, don't we!

Another logical reason is, whenever oil and gas industry is hit with low market pricing, the first thing that stops is drilling. Vice versa i.e. As soon as Oil and Gas prices start to go up, first thing that starts is drilling again. So no matter how the market may respond to expected higher prices at a later date, drilling comapnies will start operating and will start making money, hence higher stock prices.

Since, I am myself a risk averse investor and like to play it safe, I'd recommend to save some money for the 'bad times' that may come because of the worsening market conditions of oil and gas, which ultimately affect every other industry, and then invest the rest on oil stocks or any other investments you may find interest in.

Happy Investing!!

A GDP Backed Stock Index

Countries with emerging markets, possessing a high GDP growth rate and expect to experience the same in foreseeable future, can introduce a stock directly linked to the GDP growth rate.
Countries like Brazil, India, China, Qatar, Paraguay can directly create a link between a certain percentage of GDP growth with the stock index value. This will make the said stock more predictable and a direct representation of the country's economy.

Reasoning behind this idea is, I was wondering if, instead of investing in Chinese markets or any other business opportunities there, I could invest in something that is directly linked with the growth of Chinese economy. Idea might seem strange and opposing to the current orthodox ways of setting different stock indices--having indirect links with phenomenon such as GDP, Inflation, Dollar Value--- But not directly linked stock. But as a country, the concern is to bring in investments, orthodox or un-orthodox is not the question to be asked.

This approach can be, specifically, used by countries like India, Brazil, Qatar, United Arab Emirates, whose GDP's are on the rise, and they are expecting growth in the foreseen future. There are so many investors who are inclined to invest in such countries but find it difficult to look for 'real' earning opportunities. These investors, including myself, would feel more secure in investing a country backed stock---Yes! a Country Backed Stock!! This way investors can get much secured returns on their investments, and can predict the returns in a better way than investing in any corporation of that country.

On the other hands these countries will have huge investments flowing in and this, in turn, again increase their GDPs if these investments are used properly.

Stocks may be linked with GDP itself, or GDP growth rate, but all technicalities once taken well care of, this NEW STOCK INDEX can generate greater returns for the good of both investors and the growing countries.

 

Save your credit card while purchasing online

Many of us owning credit cards are, or should be, aware of the fact that Online Scams are becoming a very notoriously popular phenomena. There are many online scammers and hackers who are waiting for you to make a mistake online, provide your information to an unsecured website, and subsequently, lose money on your credit card. According a recent research by Master Card, online earning trends have considerably increased in cities like Dubai.

Purchasing online is very convenient and has many pros attached to it. So we cannot just advise to stop purchasing online by using your credit cards, rather there are some advices I would like to dart down below for consumers to be more careful regarding their credit cards usage online.

Use Famous and Secured Sites

There are many famous websites, such as ebay, amazon etc., where you can just go and purchase securely using your credit cards. But please make sure that you are using the website directly and not following a link from other website. Because there are many fraudulent websites which may hack your information this way.

For regular websites, in order to make sure if there is a secure connection between your explorer and that site, have a look at the URL: if it starts with [https://], you are on a secured page; if the URL starts with http://, you're not.

Further, Look for a padlock somewhere in your internet browser (explorer, firefox, safari etc). If there is no padlock on the browser somewhere then the page could be unsecure. If the browser does have a padlock, then it means that the website is secure. NOTE: The padlock is not shown on the website page (as this means absolutely nothing), rather the padlock that you're looking for is somewhere on the browser. Here are two examples of how the padlock can look:

Use Alert Pay or Pay Pal for online purchases

These are two very famous websites for making online purchases. You can register your credit cards with these sites, transfer funds there and make online purchases. They are very secure websites and are just like online bank accounts. This way there is a very secure third party involved in your transactions and your credit card information is not directly exposed to the suppliers.

(click below to join these sites now)

1. Alert Pay

2. Pay Pal

Money Expo Dubai , April 2011

For readers living in UAE, in general, and Dubai, in particular, Money Expo Dubai is a wonderful event when it comes to finance, investments and personal finance, investment banking and other related financial aspects. This event is for everyone i.e. individuals, companies, SMEs, banks, finance professionals, a general consumer, investors etc.

Financial education has always been on the weaker side in Dubai, I beleive, and individuals with heaps and heaps of financial assets do not seem to be in a habit of planning scientificaly to increase their wealth. Students of finance, based on my experience of teaching in a renowned banking institute in the area for a very short period of time, are weak in understanding financial concepts and then applying them in their daily life. So I would like to encourage all and sundry to visit this event and try to have a better understanding of the financial world.

This is The Largest personal finance and investment show in the Middle East and the first ever dedicated event of its kind to focus on the promotion of investment opportunities and wealth protection strategies for individuals, families and small businesses.

The MONEY EXPO will provide an ideal platform for financial institutions to meet consumers and interact on a one-to-one basis. This is the best opportunity of the year to market your products and solutions, educate and empower your current and prospective customers all under one roof. If you have an offering in one of the following areas: insurance, credit cards, mortgages, bonds, forex trading, savings plans, offshore tax, wealth management, debt management, commodities and internet marketing - contact us now to secure your place

So I suggest everyone should visit this huge event to benefit from expert view of Financial Gurus of the region.

Factors to Consider Before Investing

After discussing Differences between Savings and Investments, we will further discuss Investments to see what important factors an Individual Investor must keep in mind before making actual Investment decisions. From First and Seconds Lesson on investment, we have darted down certain points which classify investments from savings, and have noted few factors there that an individual investor must keep in mind to make wise investments, or even, to make investments at all or not.

This Lesson will cover in detail, factors and checks that are or should be backbone of investment decisions.

1. Avoid Hasty and Un-Planned Decisions. In a volatile market and financio-economical situation like present, it has been observed that investors are making rapid investment decisions without involving much planning and analysis. Investors, out of fear and/or lust factor, seem to have ignored and put aside their long term financial goals and all that long planning they had done in a normal market situation. This kind of behaviour must be avoided as it may, and mostly does, add to the already piling up losses. You financial plans may be revived, trimmed and modified but should not be completely ignored as you have had put some hard work and thinking while making those financial plans and setting your financial goals.

2. Draw or Re-Draw a Personal Financial Road Map. As discussed previously in my post on Having a Plan before Writing a Business Plan, we discussed how important it is to know and analyze one's personal financial position before making any kind of financial decisions. We stressed there that an investor(which in that case was for a proprieter) should first thoroughly analyze his current personal financial position, keeping in mind his future plans regarding his personal life, future major expenses, future earning options i.e. both expected amount and timings. One should have enough cushion for one's near and far future personal plans, and then see how one can set aside to invest into a new investment)
If you are already very much vulnerable to a financial crisis, based on your current financial condition and future expectations, you should avoid the idea of risking your finances even more by even thinking of a new investment.

3. Knowledge, Expertise and Skills related to Investment. It is always advisable to invest in something you have yourself knowledge and expertise of, instead of completely relying on Investment Managers(if you are going to hire one). If you think you have keen interest in an investment and it is not very technical to handle, you can even yourself manage your investment and save costs. But again it is more advisable to atleast have some guidance from one. Having knowledge and expertise of a particular investment class will enable you to make better decisions and look for more innovative and modern ways of investments. So even if you don't have know how and you trust a particular investment management company, before investing do detailed research and try to get as much as knowledge as possible of the subject, which in this case is an investment.

4. Asses you Risk Tolerance Capacity. Every investment involves some sort of risk, as this is something that differentiates Savings from Investment. If you are investing in stocks, bonds, real estate--there is definitely risk involved. As compared to depositing in Secured Banks. The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents. On the other hand, investing solely in cash investments may be appropriate for short-term financial goals. The principal concern for individuals investing in cash equivalents is inflation risk, which is the risk that inflation will outpace and erode returns over time.

5. Timing of Investment. Based on your Financial Position and your long term or short term financial goals, you should assess if this is a right time for you, financially, to make an investment decision. Jumping into an investment decision just for the sake of it can destroy your hard-earned earnings.
Moreover, you should also consider the timings of the economic cycle. You would need to check whether it is the start, mid or assumed end of a financio-economic cycle as you cannot make investment decisions in isolation from the current market conditions.

What is Loan Amortization?

Loan Amortization is a process where equal amount of monthly loan payments are made, with an interest portion and a principal portion.

Mortgage loans are prime examples of Amortized Loans. They have very long payment terms e.g. 30 years.  Interest portion, during the earlier months of the loan, is higher and principal portion is on the lower side.

Advantage of such a loan is that borrowers can plan their monthly expenses as the payments are fixed. But there are some disadvantages attached to this loan. In case of a home loan, for example, as interest constitutes a larger portion of the loan during earlier months of the loan, the borrower can only equitize small portions of payments made. Though, this can be overcome by paying extra payments and asking the lender, which may be a bank or some lending agency, to adjust these against the principal only.