A Muslimah’s Basics to Investing

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Alhamdulillaah for all the rizq that Allah has given to us. We can use that rizq if it’s in the material form for our own living cost and probably also can support other people’s living as well. Yet, in regards to the many material rizq that Allah has given us, we must also balance our spending. We have to spend it on the good stuff that we can afford and on the other hand we have to save it also, for our future in duniya. This is written in the Quran surah Al Furqan: 67,

Those who, when they spend, are not extravagant and not niggardly, but hold a just (balance) between those (extremes);

Then it’s permissible when you have money, you spend it for best clothing, best education for your children, best umroh/hajj package, or anything else, that you can afford. It is a means for you to be grateful for the rahmah that Allah has given to you. But don’t forget to set aside some of your money, so that when you don’t have any means to earn money for a living, you still have some saving in your pockets. The right hand on the above is always better than the hand that goes under it.

Therefore, invest your surplus money -that has been cleaned by paying zakah first- when you still have them. In this posting, I would like to describe several options of investment to make that idle money works for you.

Investment is putting your idle money into a certain account which cannot be withdrawn as freely as a saving account. So, don’t expect to see your principal money – that is the money you put in the account- in the near future. But expect to receive the profit generated from investing that principal money.

Therefore, keep in mind, that you might need some current cash account for any immediate emergency. So invest only the amount of money that you think would not be needed for at least the next 3 months.

In investment, a law applies that the higher the risk of an investment, the higher is the return. The options that I write here, are the ones that in accordance with Islamic syariah, and starting the list from the lower risk investment is:

1. Time Deposit (T/D): this has been previously discussed in earlier post about Mudharabah. But the main idea of Time Deposits is you commit to put your money into an account for a definite period of time, and in that period of time, you can’t withdraw it except with a certain penalty fee.

The common periods are 1, 3, 6 and 12 months and it can be extended (roll-over).  You can choose to receive profit (interest in conventional bank) every month in your current account or choose to add the profit to the principal when the time is due (capitalize). You don’t need to have lots of extra fund to have a T/D account in Indonesia. You can start from IDR 500,000 in some banks. However in Saudi, the minimum amount is quite high. Some banks require around SAR 25,000-50,000 for opening a T/D account.

The advantage is that the risk is very low, especially when the bank is guaranteed by the government. And you can withdraw the money, although charge with a fee. So the investment is quite liquid. This investment can be said as the entry class for investment.

The drawback is because it is the lowest risk investment, the profit yielded is also the lowest.

2. Buying GOLD: gold is a steady investment, always. Buy coins or small bars which contain more gold. You don’t have to buy an ounce at once. Buy it little by little, for instance 5 grams or 10 grams at first. Then go up from there. Why not jewelries? Jewelries or ornaments are also nice if you also wear them, but they are more costly than coins or bars because the craftsmanship cost is added to the price. And as all fashion trends, it can go out of style. So the coin and bars are relatively cheaper and have higher return. However, for loan collateral purpose, banks usually accept jewelry rather than coins or bars. Yet, you can sell coin and bars easier than jewelries. Just go to any gold jeweler and sell them. Take care about the pricing as well. Before going to buy or sell gold bars, check you trusted website which give information about the price.

The advantage of having gold investment is the price always goes up. It can be a long term investment. It is also a liquid asset, meaning you can sell it immediately when you need funds. If you want to invest in jewelry, you can use it for fashion purposes.

The disadvantage is the storage. Gold can change color overtime when not stored properly and it can be easily stolen and sold without any paper. An extra cost would be renting a safety box.

3. Property (land and/or house): when you already had your own house or your residual savings (which already include mortgage payment – more about islamic mortagages will be in another posting insya Allah) allow you to buy a new house or land, try to invest in property. If you buy a second house (either landed or apartment) you could rent it out to pay for the mortgage and maintenance, aiming for profit, of course. If you have land you could either use it for farming/gardening or just leave it, since it doesn’t cost you much to maintain. The profit comes from the gain in sale of property and net rent income.

The advantage is that the property can either be rented or sold. And we can also use it for other purposes.

The disadvantage is that the process of buying and selling property is not an easy task. Property is one of the fixed assets; therefore you can’t use it to fulfill your urgent funds necessity. So the risk is high for this type of investment. Yet, if it doesn’t sell, you can always use land and building for many kind of purposes, that is not only for commercial purposes.

4. Mutual Funds: buying a mutual funds account has a high risk, but of course it will give you high return. Mutual fund itself is a collection of stocks and/or bonds, so rather than you buy one stock of a company you buy a basket of varied stocks and bonds. This investment allows you to gain in at least 2 different ways, from yearly dividend of stocks or coupon of bonds and from the increase price of any stocks in the mutual funds when you sell it. If you’re just a beginner, find creditable investment house/banks. The asset manager usually will give you a financial report of the mutual funds they bought for you. The price usually included a management fee for the fund manager.

Find an Islamic investment house so you don’t have to go perusing business newspaper daily to find out which stock is free from haram business (ie. pig farming, alcohol factory and seller, gambling/casinos) and which one pay out the most profit.

(Note: Islamic bonds are called sukuk and the coupon payment is based on the contract. More about Islamic bonds to be discussed in another posting)

The advantage is that this type of investment yields almost the highest return.

The disadvantage is that although buying property might require more capital (money) than buying mutual funds, the earlier is mostly considered as having the lower risk. Though probably you can’t sell it in speedy manner when you need money, you still have the fixed asset in your hand. While if the company that you invested go bankrupt, you could lose your invested money.

5. Invest in your own idea! If you have hobby or idea that can generate money, invest in it. For instance, if you like photography, invest in photography school and the tools, then probably make your own photo studio for ad agency or event organizers. Or if you like to cook, and your cooking is already a hit among your friends’ parties, you could offer catering service or just selling some foodstuffs. And many more…You know what you capable of. Sometimes it doesn’t even require a large amount of money to start

Of course the main drawback is that this kind of investment has the highest risk, where you can lose more than the principal money you already invested.

But the real advantage is besides gaining much profit for yourself, a success as an entrepreneur gives you more than just money but also satisfaction and probably also provide jobs for other people.

 

Finally, it’s up to you which kind of investment you want to choose. But it always wise NOT to put all your eggs in one basket. You need to diversify, so the risk will be spread among all those investment vehicles. And most importantly, do intensive research before investing your money in a high risk vehicle. It will probably take up some of your time, but it’s always better safe than sorry.

 

 

Image: tungphoto / FreeDigitalPhotos.net

 

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