Advisors might want to bone up on the rules governing retirement investments under Islamic guidelines—particularly since many American Muslims are following those religious guidelines within their retirement portfolios.

The New York Times reports that those guidelines screen out plenty of what otherwise might be considered acceptable investments: “companies and funds,” the report says, “that trade in a host of forbidden goods and services,” termed haram.

Among those forbidden categories are alcohol, tobacco, pork products, “immoral” media or entertainment (such as pornography) and quite a long list of other things.

The guidelines also rule out companies that have too much debt on their balance sheets, conventional banking and insurance stocks (because of the interest they charge on loans—also forbidden, unless the interest is minimal—5 percent or less—and any dividends earned on that interest are donated to charity), annuities and short selling (regarded as gambling and thus considered haram).

But before retirement advisors dismiss the sector—admittedly small here in the U.S., with Muslims making up only about 1 percent of the population—they need to consider that even here in the U.S. it’s growing.

While most Islamic financial assets are held in Malaysia, the United Arab Emirates and Bahrain, the report says, Islamic investors in the U.S. who are approaching retirement are no less in need of retirement savings and planning.

Observant Muslims in the U.S., a 2009 Gallup poll found, are slightly more likely than non-Muslims to be in professional careers, and a 2011 Pew Research Center study found that they’re just as likely as other Americans to have incomes topping $100,000.

And considering that one of the early Islamic texts on which Islamic saving and investing is based comes from a hadith (a collection of the Prophet Muhammad’s sayings) in which he warned that “one who is prudent in spending will not be dependent on others” later in life, it’s particularly apt for retirement savings.

In fact, for a Muslim to keep his finances compliant with Shariah (Islamic law), the rules are complex.

However, while it may be a challenge to outsiders, there is a growing number of Islamic products available in financial markets (sukuks—Shariah-compliant bonds; mutual funds; indexes that list compliant companies), as well as organizations that can help Muslims achieve their financial goals while following their religious principles.

For advisors who want to learn more, there are the Accounting and Auditing Organization for Islamic Financial Institutions; Malaysia’s Islamic Financial Services Board; Bahrain’s International Islamic Financial Market; and others.

They might also be interested to know that, during times of substantial volatility, the Islamic financial sector historically does well—something people saving for retirement will be very reassured to hear.

Instant Insights /

Retirement saving is different under halal guidelines

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