We all love to have more money! But often we don’t think about why do we need more money? This is true for every one of us whether a Muslim or not. However, Muslims are supposed to do every act for a valid purpose since we believe that we are accountable to Allah (Subhanahu Wa Ta'ala) for our actions. We can think of four main purposeful uses of money:

1. Spend now for a purpose: We need money to spend on products and services that we consume on a regular basis including food, clothes, mortgage payments, and rent etc.
2. Save for a purpose:  Saving is a way to ensure that we have access to money when we need it, particularly to spend later in time on the same stuff that we regularly consume. Notice that to save for the future you will need to sacrifice your consumption now.
3. Invest for a purpose: Our need usually grows over time for many reasons including marriage, childbirth, moving, retirement, etc. So, to ensure that we will have more money to spend in a time of need in the future, we invest our money now. Again, notice that to invest for the future you will need to sacrifice some of your current consumption.
4. Give for a purpose: Another important yet often forgotten purpose of having money is to be able to give and gift others in need of money. You can give and gift your money to your family members, relatives, friends, people in need and to any cause that you care about.

Since everything that we do with our money has a purpose, investing our money also has a purpose as we have learned above. Some of those purposes are common to all, irrespective of their religious belief and practice, while others areare specific to Muslims only. Some of the purposes of investment: 

• Hajj, travel, vacation etc. 
• Marriage, House purchase etc. 
• Education Funding for Kids
• Health Expenses
• Retirement Funding, and more.

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Risks in Investing 

Although, investing in stocks and other permissible financial assets gives us an opportunity to build our wealth over time, it also has certain risks. Risk is the unexpected outcome of one’s investment including loss of the original capital or lower rate of return, also known as the downside risk. There are many types of risk which can generally be divided into market wide risks and asset specific risks. While the former  can’t be avoided, the latter type of risk can be reduced via diversification. Diversification involves selecting unrelated assets in one’s investment portfolio such that all assets do not fall in value at the same time. At this point, it is important to note that Muslims also face something that can bet termed as spiritual risk. It is the likelihood of the possibility that one loses spirituality and reliance on Allah (Subhanahu Wa Ta'ala) because of investment related failure and success. We can’t lose sight of our belief, Allah (Subhanahu Wa Ta'ala) is in control of what we gain or what we lose. We can put our maximum efforts diligently and prudently, but ultimately the success and failure are both at the hands of Allah (Subhanahu Wa Ta'ala).

Compatibility, Purification and Zakat 

Our discussion will remain incomplete, if we do not mention a few additional concepts that are specifically relevant to Muslim investors and they are: shariah compatibility, income purification and Zakat on investment. 

First, Muslims cannot invest in just any financial assets, rather, they can only invest in shariah compliant assets. It simply means that a financial asset must fulfill certain requirements to be eligible for investment by Muslims. The shariah compliance is based on the principles of Islamic financial transactions as outlined in the Quran and the Sunnah and elaborated by the Shariah scholars. The most popular shariah compliance requirements have been developed by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) headquartered in Bahrain.  

Another important element of shariah compliant investment is income purification. Income purification entails getting rid of impure portion of any investment income resulting from activities that are considered impermissible according to Islamic rules of financial transaction. It is not often easy and straightforward for an ordinary investor to figure out how much to purify from investment income. Therefore, it is recommended that we reach out to our shariah scholars and industry experts for help with this issue. 

A third aspect of investing by Muslims is to pay Zakat on their investment assets. Shariah scholars around the world have agreed that financial assets are subject to Zakat (i.e. Zakatable, so to speak) once the conditions of Zakat are fulfilled. So, it is necessary that Muslim investors include financial assets that are subject to Zakat when calculating their annual Zakat obligation at the end of a lunar year.