Navigating Risk and Return: A Halal Approach to Investing
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Investing is often described as a journey, one that requires careful planning, understanding, and, most importantly, balance. As Muslims striving to invest in ways that align with our faith, we must navigate the complex relationship between risk and return. This balance is essential in achieving our financial goals while adhering to Islamic principles.
Understanding Risk in Halal* Investing
Risk is an inherent part of investing. It refers to the possibility that your investments may not perform as expected, leading to variations in your returns. While risk cannot be entirely eliminated, understanding the types of risk can help you make informed decisions that align with your financial goals and Islamic values.
Here are some of the key types of risk to keep in mind:
- Market Risk: This is the risk that the value of your investments may fluctuate due to changes in the broader market. Market risk can be influenced by factors such as economic recessions, political instability, or even changes in government policies. For instance, a sudden economic downturn can cause stock prices to plummet, affecting the overall value of your portfolio. While diversification can help mitigate some market risk, it’s important to recognize that all investments carry some level of exposure to market forces .
- Inflation Risk: Over time, inflation can erode the purchasing power of your returns. Even if your investments are growing, if they are not outpacing inflation, your wealth may diminish in real terms. For example, if your portfolio grows at 2% annually but inflation is at 3%, you’re effectively losing 1% of your purchasing power each year. This is particularly concerning for long-term investors, as the cumulative impact of inflation over decades can significantly reduce the value of your retirement savings .
- Liquidity Risk: This refers to the risk of not being able to sell an investment quickly without affecting its price. Some assets, such as real estate, private equity, or certain thinly traded stocks, may be harder to sell in a short period. This can pose challenges if you need to access your funds quickly, as you may be forced to sell at a lower price than expected, leading to potential losses. Liquidity risk is a critical consideration, especially for those who may need to convert their investments to cash in case of emergencies .
Balancing Risk with Halal Returns
In the world of halal investing, understanding the balance between risk and return is crucial. Different types of investments offer varying levels of return, often closely tied to the amount of risk involved.
- Stocks: These typically offer higher potential returns but come with greater volatility. For Muslim investors, it's important to select stocks that are Shar'iah-compliant, avoiding companies involved in haram activities like alcohol, gambling, or interest-based financial services. Stock market fluctuations can be significant, with values rising and falling based on company performance, economic conditions, and global events. While the potential for higher returns is attractive, it’s vital to ensure that your stock investments align with your risk tolerance and long-term goals .
- Sukuks: Often referred to as Islamic bonds, sukuks are structured to comply with Shar'iah law and are considered safer than stocks. However, they usually provide lower returns. Sukuks offer a balanced option for those who want to minimize risk while still seeking growth. Because sukuks involve profit-sharing rather than interest, they present a lower risk of financial loss compared to conventional bonds, making them a more stable option for conservative investors looking to preserve their capital .
At Wahed, we understand that every investor is unique. That's why we're committed to guiding you through the investment process by tailoring your portfolio to fit your specific risk tolerance, financial situation, and long-term goals. Whether you're comfortable with higher-risk investments like stocks or prefer the stability of sukuks, we help you create a portfolio that not only meets your financial aspirations but also aligns with your faith.
Investing with Confidence and Faith
Navigating the complexities of risk and return doesn't have to be daunting. With the right knowledge and guidance, you can make informed decisions that pave the way for a secure and halal financial future. At Wahed, our goal is to ensure that your investment journey is both successful and faithful to Islamic principles. We take the time to understand your unique situation, values, and goals, and use that information to recommend a personalized portfolio that works for you.
Ready to start investing with confidence? Fund your personalized portfolio today and take the next step toward achieving your financial goals in a way that is halal and in harmony with your values.
Disclaimers:
*The term 'Halal' denotes that it is permitted and follows Islamic law
Risk Warning: Equity investments are not readily realisable and involve risks, including loss of capital, illiquidity, lack of dividends and dilution, and it should be done only as part of a diversified portfolio. Investments of this type are only for investors who understand these risks. You will only be able to invest in the company once you have met our conditions for becoming a registered member.
Please visit www.wahed.com/uk/ventures/risk for our full risk warning.
Risk Warning: As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.
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Maydan Capital Limited, trading as WahedX, is registered in England and Wales (Company No. 13451691), registered office: 87-89 Baker Street, London, W1U 6RJ, UK. Maydan Capital Ltd (FRN: 963613) is an appointed representative of Wahed Invest Ltd (FRN: 833225), an authorised and regulated firm by the Financial Conduct Authority.Wahed Invest Ltd. is registered in England and Wales (Company No. 10829012), registered office: 87-89 Baker Street, London, W1U 6RJ, UK and is authorised and regulated by the Financial Conduct Authority: FRN 833225.
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As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.
Wahed Invest LLC (Wahed) is a US Securities and Exchange Commission (SEC) registered investment advisor. Wahed Invest provides brokerage services to its clients through its brokerage partner Apex Clearing Corporation, a member of NYSE - FINRA - SIPC and regulated by the SEC and the Commodity Futures Trading Commission. Registration does not imply a certain level of skill or training. Wahed does not intend to offer or solicit anyone to buy or sell securities in jurisdictions where Wahed is not registered or a region where an investment practice like this would be contrary to the laws or regulations. Any returns generated in the past do not guarantee future returns. All securities involve some risk and may result in loss. Any performance displayed in the advertisements or graphics on this site are for illustrative performances only.
Disclaimer: Wahed Technologies Sdn Bhd ("Wahed") is a Digital Investment Manager (DIM) licensee issued by Securities Commission Malaysia (eCMSL/ A0359/2019). It is part of Wahed Inc. Wahed is authorized to conduct a fund management business that incorporates innovative technologies into automated portfolio management services offered to clients under a license issued pursuant to Schedule 2 of the Capital Markets Services Act 2007. All investments involve risks, including the possibility of losing the money you invest, and the track record does not guarantee future performance. The history of returns, expected returns, and probability projections is provided for informational and illustrative purposes, and may not reflect actual future performance. Wahed is not responsible for liability for your trading and investment decisions. It should not be assumed that the methods, techniques, or indicators presented in this product will be profitable, or will not result in losses. The previous results of any trading system published by Wahed, through the Website or otherwise, do not indicate future returns by that system, and do not indicate future returns that will be realized by you.
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Wahed assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. Any strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. Furthermore, the information presented may not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance.
There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented. Any links to third-party websites are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites nor do we endorse the content and information contained on those sites. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the third-party websites.
