Advice [on Shariah compliant investment products]

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timmy
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Advice [on Shariah compliant investment products]

Post by timmy »

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nedsaid
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Re: Advice for [Religious Investor]

Post by nedsaid »

There are Amana funds that are targeted for [this religion --admin LadyGeek]. It actually did well through the 2008-2009 bear market because it shunned financial stocks. My workplace savings plan offers the Amana Income fund but I do not invest in it myself. It sounds to me like a good dividend and value strategy. The fund family offers three funds.
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Re: Advice for [Religious Investor]

Post by steve_14 »

The point of bonds isn't to protect the equity portfolio, but to diversify to a second, less risky (but still growing) asset class. That's different than buying a put, which is betting against yourself. If I couldn't hold debt, I'd probably diversify to assets I expect to grow at the rate of inflation (gold, other commodities, real estate) as a bond substitute instead, though these are all risky assets.
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Re: Advice for [Religious Investor]

Post by stan1 »

Real estate and gold/commodities (some risk), or a business (illiquid but may generate income).
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Re: Advice for [Religious Investor]

Post by LadyGeek »

FYI - Religion is a very sensitive topic in this forum to the point that mentioning a specific group is very contentious. To be fair to everyone, we don't permit religious discussions (see Forum Policy). I have removed the name of the religious group from the title and one post.

The OP is requesting investment advice for someone who cannot hold bonds. That's all the information we need to know, so let's try and proceed with that.
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Nomadix
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Re: Advice for [Religious Investor]

Post by Nomadix »

This is an issue that is bound to keep cropping up, but that's a good thing as hopefully more discussion will lead to creative solutions for this predicament. While at this point it seems a good investing strategy is actually rather simple, unfortunately for certain observant religious investors the bond restriction really throws a wrench in the whole asset allocation strategy. Obviously, asset allocation is still king, but the task of finding a bond alternative muddies things.

The issue and related topics have been discussed a few times before, I provided links below.

More to the point of OP's questions, I certainly don't think puts are the answer. Things like gold, cash, real estate, dividend aristocrats, etc... are starting points, though still imperfect options. Any other bogleheads interested in this topic please feel free to PM me as I would love to have a group to continue bouncing ideas off of.

http://www.bogleheads.org/forum/viewtop ... =1&t=58376

http://www.bogleheads.org/forum/viewtop ... 1&t=110714

http://www.bogleheads.org/forum/viewtop ... 1&t=110714

http://www.bogleheads.org/forum/viewtop ... &p=1738294

http://rizqmanagement.com/?p=59
Last edited by Nomadix on Sun Apr 06, 2014 2:54 pm, edited 1 time in total.
JFC
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Advice for [Religious Investor]

Post by JFC »

Hello,

I have been a long term lurker on this wonderful site and it's my first post.

In the [(religious)] world there is significant differences, as how one have to deal with financial instruments.
At one extreme of the spectrum, there is [(religious members)] who refuse to even have a bank account, on the other side there is people like me.

"Eating" from interest is clearly forbidden, but no matter what scholars say, interests are everywhere. There is a lot of complex [(religious)] financial instruments available outside of the USA but they mostly disguise interests. The Amana funds do not contains financials but the companies in the funds will borrow money and will eventually hold liquidities in bonds, money markets and the likes...

So to some extent a [(religious members)] will have to decide for himself what is reasonable and compatible with his faith.

Our choice has been, no direct holdings of sector funds in financials, no direct holdings of financial, insurance and banking stocks, no holdings of bonds... Until I realize that my 401k do not offer a money market but a stable value fund...
So the plan now is to keep a bit of money in the stable fund, keep track of profit and donate them (so no direct profit).

Beside that, one could invest in real estate (mortgage acceptable for primary residence for 50% of [(religious members)] in western countries), have a business, keep cash.

Last my understanding is that it is strictly forbidden to play with puts, options. Exchange in the [(religious)] world should strictly be limited to things which are real and that you own (no margin either).

If you ever plan to get a pension or social security, the money is directly derived from interests so there is another tough decision to take. For us, we will take SS as it is the USA system.

JFC
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Re: Advice for [Religious Investor]

Post by LadyGeek »

Welcome! As explained previously, I have removed the name of the religion. Feel free to PM Nomadix to continue the discussion offline.

Since this is a sensitive topic, I want to clear that Forum Policy applies for PMs. If anyone receives an "unwelcome" PM, please report the PM using the "!" in the top right corner of the PM post. See: REPORTING VIOLATIONS AND UNWELCOME PMs
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Nomadix
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Re: Advice for [Religious Investor]

Post by Nomadix »

Somewhat unrelated, but for those looking for a savings account alternative, this US-based bank has an interesting 'profit-sharing savings account,"

http://www.myuif.com/
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Re: Advice for [Religious Investor]

Post by carorun »

I am going to assume you are of a popular religion that does not allow bonds because they are usury/debt. Have you looked into halal investing? I hear it's very popular in the UK and I think there are companies in the US as well.

Additionally, what about keeping a larger cash cushion or money market in order to add stability to your portfolio?
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Re: Advice for [Religious Investor]

Post by jbmitt »

I found this to be an interesting topic, something entirely new to me. I found other reading on the topic, but unfortunately no solutions to share.
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Re: Advice for [Religious Investor]

Post by Nomadix »

Also, for those trying to figure out the equity part of their allocation, here are the products, that I am aware of, that are available. Unfortunately, mostly limited to actively managed.

Actively Managed

(higher quality)
AMAGX (Growth) ER 1.13%
AMANX (Income) ER 1.20%
AMDWX (Developing) ER 1.61%

(lower quality)
ADJEX 0.98%
WISEX 1.49%
IMANX 1.59%

Passive/Index Funds

iShares MSCI World Islamic ETF (ISWD) ER 0.6%
iShares MSCI USA Islamic ETF (ISUS) ER 0.5%
iShares MSCI Emerging Markets Islamic ETF (ISEM) ER 0.85%

db X-trackers DJ Islamic Market Titans 100 UCITS ETF (XMIT)
db X-trackers S&P 500 Shariah UCITS ETF (XSHU)
db X-trackers S&P Europe 350 Shariah UCITS ETF (XSHE)
db X-trackers S&P Japan 500 Shariah UCITS ETF (XSHJ)

Unfortunately, the iShares and db X-trackers ETF's are not available on any US exchanges. Also, not sure if there now exist similar mutual funds. If anyone knows of any additional funds/ETFs, or an easy way to access the non-US exchange ETF's, please share.
Last edited by Nomadix on Mon Apr 07, 2014 9:59 pm, edited 1 time in total.
retiredjg
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Re: Advice for [Religious Investor]

Post by retiredjg »

It is simply not possible to have this discussion by substituting "can't hold bonds" for what really matters in the question. There is a lot more to it than that.

Have your friend research these magic words - sharia compliant investing - for more information. Forbes has several article that might be helpful.
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Re: Advice for [Religious Investor]

Post by stan1 »

Options, forwards, futures, shorts, etc. would be considered gambling so not allowed.
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Re: Advice for [Religious Investor]

Post by LadyGeek »

I'd like to explain that the edits made to the posts are an attempt to avoid contentious disagreements; as we have previous experience from Do the Bogleheads here tithe based on net or gross salary?. Even after coordination with the moderators and careful wording, the thread went off in the wrong direction and got locked.

I'd like to keep the discussion going, so please stay with generic concepts or use PM.
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Re: Advice for [Religious Investor]

Post by Karamatsu »

On the one hand it's a fascinating thought experiment. What if there were no such thing as bonds or any other kind of interest-bearing debt obligation? How would you reduce risk versus a 100% equity portfolio? What would be "the other asset class" that Bogleheads talk about when they say "The most important factor is your equity/????? mix."

Since I've heard that there are religious banks that do not charge interest, I presume that the act of borrowing shares would not be prohibited, so maybe one possibility would be to create your own long-short position by buying opposing funds in something like a 70/30 ratio? Presumably you'd want to use unleveraged funds, but that does raise the point of how much you need to "look through" each investment to see what they are doing. Many funds generate extra income by lending securities in exchange for interest. Would that make the funds unusable? Likewise REITS or other real estate investments might be a choice, but since they're heavily debt-financed I'm not sure if that would be a problem.

I suppose the other option is dividends but there isn't as much diversification benefit there. Obviously dividend-paying equities have equity risk, and alternatives, like dividend-paying preferred stocks are likewise "flawed," to use Larry Swedroe's term. But "flawed" may not be so bad in a world where there is no better alternative. Maybe the OP's friend could look at investment-grade preferreds that pay dividends rather than interest?

Unfortunately international equities seem well correlated with US equities, in part because US investors play such a large role in creating liquidity/volatility in non-US markets, so there may not be much benefit to be had there, but better than nothing. Many people in Japan trade FX, but that's so volatile... no substitute for bonds.

I guess what's needed is something like a multi-dimensional MVO with equities versus various alternative (non interest bearing) asset classes. I imagine such computations are out there somewhere. It would be interesting to know what recommendations would come out of that.
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Re: Advice for [Religious Investor]

Post by stlutz »

One option worth considering, at least within the IRA, are minimum variance stocks funds like USMV or ACWV. These funds will generally be about 1/3 less volatile than the overall market, and are thus somewhat akin to a 70/30 stock/bond mix.
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Re: Advice for [Religious Investor]

Post by timmy »

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Re: Advice for [Religious Investor]

Post by HurdyGurdy »

Cash in a Money Market account, earning no interest?
a (small) portion of REITs?
http://www.bogleheads.org/wiki/REIT

(they are way riskier than bonds and can't be a complete substitute for them).
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Re: Advice for [Religious Investor]

Post by ogd »

I believe that cash is the next best thing to bonds in this situation. Money market funds and checking accounts earn just about zero right now.

A distant second would be low volatility stocks like utilities, "consumer staples" and the like. Not so good because the volatility reduction is not guaranteed, but only presumed.

I would not consider protective puts at all. Not only are they complex and often overpriced (something that is perpetually hard to judge), but I have a hard time believing that they are not violating the spirit of a law limiting financial products, if not the letter.

An interesting question is whether TIPS yielding 0% are compliant, because your money is essentially returned at the same purchasing power as it began with. From a cursory search, it would seem that the issue is controversial. Perhaps investments at 0% in low-inflation foreign currencies like Swiss Francs or Euros can substitute in that role. Gold and real estate are too volatile IMHO.

Also from that cursory search, there are banks that offer compliant deposit accounts that earn money from sources other than interest. Your friend could delegate that responsibility to them, although the question now appears of whether these deposits are safe enough given what they're made of. At least one of them seems to be FDIC insured, though.

Best of luck!
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Re: Advice for [Religious Investor]

Post by LadyGeek »

Following Forum Policy under "Member Rights in a Dispute", a member has requested the Advisory Board to reconsider moderation of the religious aspects in this thread. A very clear point was made to differentiate religion from the investing perspective. The previously locked thread, Do the Bogleheads here tithe based on net or gross salary?, was about religion. The discussion here is about investing.

Specifically, it is simply not possible to have a discussion about shariah-compliant investing without the parties knowing what was being discussed. This is a persuasive argument. The Advisory Board agrees; discussion of shariah investing will be permitted. Bear in mind that the religious aspects will be moderated, so please avoid religious contexts.

I have restored the edited posts which mention sharia and halal investing styles.

Here is a helpful link: Sharia investments - Wikipedia, the free encyclopedia

Also: A closer look at shariah exchange trade funds
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Re: Advice for [Religious Investor]

Post by Angelus359 »

Can someone explain exactly what rule, or law is in effect here, to cause the limitation, so we can discuss ways to avoid it, in spirit and in effect? I'm unfamiliar with how this works.
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Re: Advice for [Religious Investor]

Post by carorun »

Angelus359 wrote:Can someone explain exactly what rule, or law is in effect here, to cause the limitation, so we can discuss ways to avoid it, in spirit and in effect? I'm unfamiliar with how this works.
My understanding is that Muslims can not invest in bonds. There is a prohibition against debt and usury, hence the options for halal investing in the US and UK.
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Re: Advice for [Religious Investor]

Post by LadyGeek »

Angelus359 wrote:Can someone explain exactly what rule, or law is in effect here, to cause the limitation, so we can discuss ways to avoid it, in spirit and in effect? I'm unfamiliar with how this works.
To address this from another perspective, forum policy is designed to keep the peace - meaning to reduce the workload of the moderator - and is why politics and religion are off-topic here. I sent you a PM with more information.

If anyone has questions on why / how we moderate, please PM me.
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Re: Advice for [Religious Investor]

Post by retiredjg »

LadyGeek posted some links. Here's another. http://www.forbes.com/sites/timothyspan ... tructures/ . And google is your friend for this type of question.

There are several types of investing based on a person's moral obligations or preferences. This is one of them. Another example, not based on a specific religion, would include what are called the "socially conscious" funds (again, google would be your friend here).
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Re: Advice for [Religious Investor]

Post by LadyGeek »

retiredjg wrote:...There are several types of investing based on a person's moral obligations or preferences. This is one of them. Another example, not based on a specific religion, would include what are called the "socially conscious" funds (again, google would be your friend here).
Socially Responsible Investing is mentioned in the first paragraph of the Wikipedia article, Sharia investments, which puts things in perspective:
A Shariah compliant fund is an investment vehicle fund structured in accordance to Shariah rules. Shariah funds can be managed as mutual funds, ETFs[2] or hedge funds. They are in essence common funds with an extra layer of ethical rules integrated in the investment polices of the fund[1] not dissimilar to SRIs. While the funds are required to be fully compliant with Shariah rule, the companies structuring, managing and promoting the funds do not have to be necessarily Shariah compliant.
The wiki covers Socially Responsible Investing in more detail: Social responsibility indices
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Re: Advice for [Religious Investor]

Post by Ketawa »

An FDIC insured 0% checking account seems like the best conventional choice to me. This would serve the role of reducing portfolio risk to an acceptable level.

If acceptable, the investor might want to consider a tilt to value and/or small caps to compensate for the fact that the only source of return is exposure to the overall market (beta).
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Re: Advice for [Religious Investor]

Post by Nomadix »

Angelus359 wrote:Can someone explain exactly what rule, or law is in effect here, to cause the limitation, so we can discuss ways to avoid it, in spirit and in effect? I'm unfamiliar with how this works.
The most significant issue is the prohibition against what is called 'riba,' which is variously translated as interest or usury. The most basic definition often given is 'making money on money,' or 'an increase in capital without services provided.' There is also the principle that profits and losses should be shared and there should no be any guaranteed returns. The mainstream opinion therefore regards interest bearing instruments as impressible- savings accounts/CDs/treasury bills/bonds/etc... A minority opinion is that interest up to the value of inflation is acceptable, though at this point most do not subscribe to this.

Another issue is that type of industries invested in, such as tobacco, gambling, alcohol, and others are seen as impressible. The Forbes article LadyGeek linked is good primer.

All that said, all of these definitions and understandings are still fluid as 'Islamic finance' is still relatively young and Muslim thought is trying to come terms with modern finance.

http://en.wikipedia.org/wiki/Riba
http://www.investopedia.com/terms/r/riba.asp
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Re: Advice for [Religious Investor]

Post by mnvalue »

Can he build extra equity in his house? Basically, pay down the "mortgage" "negative bond" as it were? He may not have a mortgage per se, if he uses one of the Islamic finance methods I've read about. But that might be a way to achieve a similar overall net worth volatility smoothing effect as why most Bogleheads buy bonds.
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Re: Advice for [Religious Investor]

Post by Angelus359 »

I'm thinking a strong allocation of defensive stocks, and a non interest bearing checking account will do.

If you bump up against that 250k limit on checking, make the rest 100% stocks, or get a second bank
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Re: Advice for [Religious Investor]

Post by leonard »

Virtually all companies receive interest in one form or another. As a stock shareholder, one is an owner of the company and therefore they are receiving interest.

I don't see any way around this conundrum.
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Re: Advice for [Religious Investor]

Post by Karamatsu »

This is what I meant by asking if there is a "look-through" principle. Presumably since the OP's friend holds equities, the fact that most companies are debt financed does not present a problem so long as the investor himself is not "making money on money." There is a grey area, of course, but I imagine that is up to the conscience of the investor.
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Re: Advice for [Religious Investor]

Post by keanwood »

Does the restriction on interest only apply to direct interest? If so than I would just go equities / cash / real estate paid in full. If the restriction prevents you from investing in companies that receive interest( basically all of them) than you can really only do cash / gold / real estate paid for in full. Also Social security and pensions would be off limits too.
JFC wrote: keep track of profit (start-edit)interest(end-edit) and donate them (so no direct profit).
If your friend is willing to take this approach than all of a sudden many more options will appear for him.


Just out of curiosity can your friend use a credit card if he pays it off every month thus insuring that no interest is paid?


good luck,
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Re: Advice for [Religious Investor]

Post by LadyGeek »

Nomadix wrote:The Forbes article LadyGeek linked is good primer...
On a minor point, the link was supplied by retiredjg: Islamic Funds - Sharia Law and Investment Structures

Do we have any recommendations for the OP? I think the Protective Puts were not recommended, but Nomadix had a few suggestions using actively managed funds.

Is there a way to create a set of guidelines that align with the Bogleheads investing approach?
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Re: Advice for [Religious Investor]

Post by Karamatsu »

Well, ultimately we're asking for the best risk-adjusted return from a mix of asset classes once the unacceptable ones are removed, so the first step is to enumerate the asset classes, then remove the ones that are not going to be usable, then examine the correlations among diversified funds and perhaps use some statistical techniques like MVO to get a handle on what sort of mix might have been reliable in the past. It may be that, rather than two factors (like equities and bonds normally used), more are needed.

Then of course you'd want to look at expenses.

Of course, philosophically it may also be good to look at the bigger picture and say that, really, the provisions of Islam don't favour this form of investing at all, and rather than making money in this way, the suggestion is to make one's fortune by one's own hands, so to speak. You invest in yourself (education and training) and in the labor that you yourself do, and leave the rest to Providence. Sometimes (since this is, after all, an investing forum) we probably forget that markets aren't the only way.
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Re: Advice for [Religious Investor]

Post by Phineas J. Whoopee »

LadyGeek wrote:
Nomadix wrote:The Forbes article LadyGeek linked is good primer...
On a minor point, the link was supplied by retiredjg: Islamic Funds - Sharia Law and Investment Structures

Do we have any recommendations for the OP? I think the Protective Puts were not recommended, but Nomadix had a few suggestions using actively managed funds.

Is there a way to create a set of guidelines that align with the Bogleheads investing approach?
I think we would need a religious authority, and even at that, there are five schools of legal thought, and individual scholars reach their own conclusions. Islamic finance is still an emerging field. I'd be very cautious about providing guidance, other than the overall Bogleheads philosophy. If, and I don't think it's happened yet but if there came to be readily-available generally-agreeable mainstream Sharia-compliant investments which would work to dampen the volatility of stocks we might mention those. I don't think we're even safe recommending equity funds because so many use temporary short-term interest-bearing instruments, and I bet not everybody will respond to those in the same way. There is no monolithic "Islam" any more than there's a monolithic "Christianity." I think it will come down to being a matter of industry coalescence and widespread, although not universal, agreement that certain instruments pass muster.

Without doubt there will be varying opinions and I don't think bogleheads.org should put itself into a position in which it has even the appearance of taking sides in religious matters.

The wiki article on social responsibility indices might eventually become a model for the sort of thing we could legitimately provide.

http://www.islamic-finance.com/indexnew.htm
http://www.islamicfinancenews.com/
http://www.myuif.com/
http://www.ifsb.org/
https://www.lariba.com/default.htm
http://ifp.law.harvard.edu/

Those are from the first page of Google hits on "Islamic Finance." I am by no means expert enough even to identify whether they align with each other.

PJW
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Re: Advice for [Religious Investor]

Post by LadyGeek »

Karamatsu wrote:Well, ultimately we're asking for the best risk-adjusted return from a mix of asset classes once the unacceptable ones are removed, so the first step is to enumerate the asset classes, then remove the ones that are not going to be usable, then examine the correlations among diversified funds and perhaps use some statistical techniques like MVO to get a handle on what sort of mix might have been reliable in the past. It may be that, rather than two factors (like equities and bonds normally used), more are needed.

Then of course you'd want to look at expenses...
I agree with the approach, and that expenses are secondary. Obtaining publicly available historical data for asset classes other than stocks and bonds is difficult.

Based on the next post (Phineas J. Whoopee), it might not be productive to implement this approach.
Phineas J. Whoopee wrote: think we would need a religious authority, and even at that, there are five schools of legal thought, and individual scholars reach their own conclusions. Islamic finance is still an emerging field. I'd be very cautious about providing guidance, other than the overall Bogleheads philosophy. If, and I don't think it's happened yet but if there came to be readily-available generally-agreeable mainstream Sharia-compliant investments which would work to dampen the volatility of stocks we might mention those. I don't think we're even safe recommending equity funds because so many use temporary short-term interest-bearing instruments, and I bet not everybody will respond to those in the same way. There is no monolithic "Islam" any more than there's a monolithic "Christianity." I think it will come down to being a matter of industry coalescence and widespread, although not universal, agreement that certain instruments pass muster.

Without doubt there will be varying opinions and I don't think bogleheads.org should put itself into a position in which it has even the appearance of taking sides in religious matters...
This is exactly why I asked. If it's not possible to have a consensus, whether due to religious aspects or the investments are inconsistent (for lack of a better term), then that perspective should be made clear.
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Re: Advice for [Religious Investor]

Post by Karamatsu »

Well, maybe if we set aside trying to come up with a recommendation for Muslims in general and focus only on the OP's friend, perhaps we can say that the first requirement is to look at the questions raised by the varying Islamic interpretations of investment issues, and decide how he will answer them. Once he knows the parameters that will mark a given asset or asset class as acceptable or unacceptable, then the next step, researching classes/funds, can be taken with more certainty, though of course it will still be hard to find data.
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Re: Advice for [Religious Investor]

Post by retiredjg »

This wheel has already been invented. I'm not sure how helpful it is for us to try to re-invent this wheel since most of us know nothing about what is permitted and what is not permitted.

The OP's friend needs to do research on that subject and make his own decisions. There apparently are ways to work around these restrictions, but I'd guess this is something few Bogleheads know much about. So other than the suggestions already made, I'm not sure how much help we can be.

Interesting subject though.
leonard
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Re: Advice for [Religious Investor]

Post by leonard »

Karamatsu wrote:This is what I meant by asking if there is a "look-through" principle. Presumably since the OP's friend holds equities, the fact that most companies are debt financed does not present a problem so long as the investor himself is not "making money on money." There is a grey area, of course, but I imagine that is up to the conscience of the investor.
The investor owns the company by owning shares. There isn't any indirectness or grey to it.
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Nomadix
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Re: Advice for [Religious Investor]

Post by Nomadix »

I think a good place to start is figuring out a good equity mix first. I think a lot of people in this religous community willatually probably be just fine with doing a plain old index fund, but for those who prefer the ethical funds, perhaps we can figure out a good mix of these funds. Now I know this is somewhat antithetical to the basic bogleheads philosophy, but (bare with me here) I still think it's appropriate because we are trying to approximate as best as possible a broad passive index approach with the funds available to investors with these restrictions.

That said, given the funds below, what would be the best allocation to gain as broad an exposure as possible with the lowest fees:

AMAGX (Growth) ER 1.13%
AMANX (Income) ER 1.20%
AMDWX (Developing) ER 1.61%
ADJEX ER 0.98%
IMANX ER 1.59

There are now institutional share versions of the Amana funds with ER's less than 1%, but they have minimum of $100,000.

Not ideal, but it is what is.

As a side note, I think ideally the funds below would be the best, but unfortunately are not on a US exchange and although some brokers will allow you to make foreign exchange purchase, I haven't found a broker who will let you put them in a tax-advantaged account.

iShares MSCI World Islamic ETF (ISWD) ER 0.6%
iShares MSCI USA Islamic ETF (ISUS) ER 0.5%
iShares MSCI Emerging Markets Islamic ETF (ISEM) ER 0.85%

Thoughts?
Last edited by Nomadix on Fri Apr 25, 2014 9:53 am, edited 1 time in total.
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Sunny Sarkar
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Re: Advice for [Religious Investor]

Post by Sunny Sarkar »

My best friend is of this religion and we had quite a few respectful conversations (yes, it is possible) regarding the topic of circumventing interest income. We found that avoiding interest/dividend income altogether is near impossible because even part of the growth of near zero dividend paying growth stocks may come indirectly from the dividends the company earns on the cash it owns. He is a sincere practitioner of his faith, and after much honest deliberations he decided according to the spirit of this religious law rather than the letter of the law. He found his peace in investing passively in vanguard bond index funds - the key word being "passive" because it isolates him from any malicious intent that the law was aimed to deal with. Also, his wife works for a bank, and none of these comes in the way of the beautiful relationship they have with their faith.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
bpp
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Re: Advice for [Religious Investor]

Post by bpp »

Nomadix wrote: That said, given the funds below, what would be the best allocation to gain as broad an exposure as possible with the lowest fees:

AMAGX (Growth) ER 1.13%
AMANX (Income) ER 1.20%
AMDWX (Developing) ER 1.61%
ADJEX ER 0.98%
IMANX ER 1.59
With expense ratios like that, I would just hold the underlying stocks individually instead.
Those funds only have about 50-60 holdings each anyway.
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bUU
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Re: Advice for [Religious Investor]

Post by bUU »

I cannot speak to the others, but I have held AMAGX for almost a decade, and its portfolio has changed over that time, albeit quite slowly (turnover = 1%). It is still way too much work, for me, to have tracked the fund for the purpose of co-opting its portfolio selections, and made changes to my portfolio's holdings to keep it in sync with theirs. The purpose of holding actively-traded funds is to detach from that work, while capitalizing on the skill of the fund manager.

It is another story to make the point that the fund isn't doing well against the standard index. That's why I don't add to my investments in the fund anymore, not because it would be less costly to manage 50 separate stock holdings myself.
dl7848
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Re: Advice for [Religious Investor]

Post by dl7848 »

Sunny Sarkar wrote:My best friend is of this religion and we had quite a few respectful conversations (yes, it is possible) regarding the topic of circumventing interest income. We found that avoiding interest/dividend income altogether is near impossible because even part of the growth of near zero dividend paying growth stocks may come indirectly from the dividends the company earns on the cash it owns. He is a sincere practitioner of his faith, and after much honest deliberations he decided according to the spirit of this religious law rather than the letter of the law. He found his peace in investing passively in vanguard bond index funds - the key word being "passive" because it isolates him from any malicious intent that the law was aimed to deal with. Also, his wife works for a bank, and none of these comes in the way of the beautiful relationship they have with their faith.
It would be hard to believe holdings in Vanguard's bond index funds were not affected by the LIBOR Scandal...an interest-rate rigging scandal. Anyone care to speculate on this? My knowledge of LIBOR is pretty limited and I don't know how far the effects of LIBOR mainipulation might carry...
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Sunny Sarkar
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Re: Advice for [Religious Investor]

Post by Sunny Sarkar »

@dl7848- If one goes by the letter of the law, one need not even go so far to debate the libor incident, because the very fact every bond fund pays dividends is good enough to not choose any of them. Like I said in my previous post, even growth stocks may not be spared.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
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Blue
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Re: Advice for [Religious Investor]

Post by Blue »

Would mention zero coupon bonds to your friend.
d0gerz
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Re: Advice for [Religious Investor]

Post by d0gerz »

Blue wrote:Would mention zero coupon bonds to your friend.
I think for the purposes of the OP this wouldn't work either. The only difference between a regular bond and a zero coupon bond is the timing of interest payments.

Though I wonder if it is acceptable to keep bonds in the portfolio but then just donate the interest earned to charity?
Nomadix
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Re: Advice for [Religious Investor]

Post by Nomadix »

Thoughts on allocations for above listed funds for best exposure?
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bUU
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Re: Advice for [Religious Investor]

Post by bUU »

For what specific investment objectives, and under what specific conditions? It seems to me that the answer to that question would necessarily need to follow from a scenario presented as per http://www.bogleheads.org/forum/viewtop ... f=1&t=6212
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