Investing is a key component of building wealth and securing financial stability, but it’s a field that many women still shy away from. In fact, research shows that only 32% of women in the UK have invested compared to 52% of men.

However, what’s equally noteworthy is that women have been found to be better investors than men, outperforming them by an average of 0.4% per year and set to return 7.8% more over the course of a 30-year investment period [1].

This raises the question of why women are not investing more, and how societal and cultural factors may play a role in this. But rather than study the why, this article focuses on why it shouldn’t be this way – especially for Muslim women. 

Investing is generally viewed as permissible in Islam. Most scholars agree riba (interest) and excessive, unfounded risk-taking (gambling) are prohibited. Islamic Finance is a set of tools and principles developed to make this easier to avoid and includes new types of products and offerings for those looking to invest. There are however differences in opinion regarding the many offerings, but generally it is permitted to invest in a conscionable and Shariah-compliant manner that is as a result ethical and socially responsible. 

Many of the virtues encouraged in Islam and held dear by Muslim women can, and do, equip us with the skills and mindset needed to succeed in the world of investing, and their dutiful application would also serve to guard against non-compliance with Shariah. 

1. The Virtues of Mizan and Qist (Balance and Proportionality)

In the Qur’an, Allah commands us to maintain balance in our deeds, stating, “And establish prayer and give zakah (charity) and bow with those who bow [in worship and obedience].” (Surah Al-Baqarah 2:43). This verse emphasises the importance of balancing between different types of worship, such as prayer and charity.

The Prophet Muhammad (ﷺ)  too taught his companions the importance of balance in their daily lives. He said, “The best of deeds is the one that is done regularly, even if it is small.” (Sahih al-Bukhari) 

This hadith encourages us to balance our deeds, striving to consistently perform good actions, even if they are small.

“Diversification” is the concept of spreading out your investments. By balancing and distributing our investments, we minimise risk and protect our interests. 

According to research, diversification was responsible for 90% of the variation in a portfolio’s returns over time [2]. Meaning 90% of the returns you get from your investments over a long period of time (like years or decades) is because of diversification. By spreading your money across different investments, you can greatly reduce your risk and increase your chances of getting a good return on your investment.

2. The Virtue of Sabr (Patience and Perseverance)

Sabr is a key part of many practices in Islam. 

Sabr is a means of seeking Allah’s help: In the Quran, Allah says, “And seek help through patience and prayer, and indeed, it is difficult except for the humbly submissive [to Allah].” (Surah Al-Baqarah 2:45)

It is said that before you make du‘a for any particular thing, you should ask for patience to endure until it comes.

Sabr helps us to cope with adversity: Sabr enables us to remain calm and composed, and to endure hardships with dignity and grace. Allah says, “And We will surely test you with something of fear and hunger and a loss of wealth and lives and fruits, but give good tidings to the patient.” (Qur’an 2:155)

Sabr is a means of attaining Paradise: Allah has promised great rewards for those who practise Sabr. He says, “Indeed, the patient will be given their reward without account.” (Qur’an 39:10). This means that those who practise Sabr will be rewarded with eternal bliss in Paradise.

Sabr is what separates good investors from the bad: A study by J.P. Morgan Asset Management found that an investor who remained fully invested in the S&P 500 Index from 1995 to 2014 would have earned an average annual return of 9.85%. However, if the same investor missed just the 10 best days of the market during that period, their average annual return would have dropped to 6.1% [3]. Timing the market (trying to perfectly capture the lowest and highest price, such that you maximise your profit) is notoriously difficult and incurs not only extra costs from every trade you make but opens you up to missing longer-term investment opportunities and price trends as you constantly enter and re-enter the market.

Staying patient and avoiding the temptation to time-the-market and short-term investment is crucial to investing success.

It’s even more beneficial to avoid short-term investing because of its increased likeness to gambling and guessing, especially when there is no fundamental basis for your decision-making. This is how people can lose millions overnight: it’s not about “bad investments” but “bad decisions”. 

3. The Virtue of  Tawaadha (Humility)

Humility is a virtue that not only makes us better Muslims but better people to be around.

“And the servants of the Most Merciful are those who walk upon the earth in humility, and when the ignorant address them, they say words of peace.” (Surah Al-Furqan 25:63). We are told to receive others equally, and be modest in character.

Ibn Mas’ud (may Allah be pleased with him) reported, The Messenger of Allah (ﷺ) said, “No one who has an atom’s weight of arrogance in his heart will enter Jannah.” (Sahih Muslim)

This oft-quoted hadith emphasises the seriousness of arrogance and pride. We as Muslims are regularly reminded that even a small amount of arrogance can have grave consequences for their afterlife.

This humility, and the remembrance that all we have is given to us by Allah, can lower our susceptibility to certain cognitive biases. 

Cognitive biases are ways in which our minds lead us to make mistakes in our thinking and decision-making. They happen because our brains are wired to take shortcuts and make assumptions based on our past experiences and beliefs.

Investing is as susceptible to cognitive biases as everything else. 

A few common biases include: 

• Overconfidence bias: an overestimation of one’s ability. An example of how this can present is in believing you won’t experience a loss ever again for some time because you had a good month, which could cause you to take excessive risk with your next investment.
• Self-attribution bias: an underestimation of the influence of external factors on investment performance. This bias is similar to overconfidence but externally facing. This means blaming the loss you may eventually experience on a poorly written article you read, rather than reflecting on what you could have done better such as expanding your research.
• Herd mentality: to follow the actions and opinions of a group without independent analysis or judgement –  in this case practising humility encourages people to think for themselves and embrace their individuality, allowing us to resist undue influence from others.

As Muslims who regularly engage in the practice of humility, we’re well equipped to stay grounded and keep a level head as investors, and thus make more rational and informed decisions.

4. The Virtue of Discipline

As a Muslim woman with younger sisters, there is much I try to impart to them, particularly the value of discipline. 

As Muslims we believe we have been given free will, which means much of what we do in the name of Allah is quite simply a choice. 

Sometimes, however, the motivation to make the right choice might be harder to come by, and that is where discipline comes in.

Whether it’s fasting for Ramadan or praying on time, discipline is a regularly practised ability for us as Muslims. 

Discipline in investing goes hand in hand with humility. Overtrading, which refers to excessive buying and selling of securities/investments, can have dire consequences: according to a report by the Financial Industry Regulatory Authority (FINRA), showing excessive trading activity can knock off nearly 30% of returns in a year [4]. Disciplined investing means resisting the temptation to deviate from your investment plans, and not acting out of emotion, which includes both fear and greed. It is a common practice for unrestrained investors to close their “good investments” too soon, and leave their “bad investments” running too long. Discipline in investing looks like reasoned and diligent decision-making, on both good days and bad days. 

Another study by Morningstar found that investors who held their mutual fund investments for at least 10 years outperformed those who held their investments for shorter periods. In fact, investors who held their investments for 10 years or more earned an average annual return of 9.28%, compared to 6.34% for those who held their investments for less than a year [5]. 

“Discipline” is to “decision-making”, what “seatbelts” are to “driving”.

5. The Virtue of Adl (Justness)

In Islam, justice is considered one of the most important virtues, and it is emphasised throughout the Qur’an and the Hadith.

“O you who have believed, be persistently standing firm for Allah, witnesses in justice, and do not let the hatred of a people prevent you from being just. Be just; that is nearer to righteousness. And fear Allah; indeed, Allah is acquainted with what you do.” (Surah Al-Maidah 5:8)

The Prophet Muhammad (ﷺ) said, “The just will be seated upon pulpits of light beside God on the day of judgement, those who are just in their rulings and with their families and in all that they undertake.” (Sahih Muslim)

You should feel empowered knowing the practice of this virtue isn’t new to you, and as such you’re already positioned to have higher returns. Interest (riba) is considered haram for a number of reasons, with the principal reason in relation to the abiding of this virtue, adl: 

Interest is seen as a form of unjust enrichment because it allows lenders to earn income without any effort or risk

Interest-based investments (aka Bonds) are lower-yielding and reduce a portfolio’s overall returns, so you’re starting on solid footing by having no exposure to this asset. If you’re not comfortable with the perceived risk of stocks, there are industries you can choose for this exact reason and other asset classes such as commodities. There are non-equity, low-to-moderate-risk alternatives out there. 

Precious metals like gold and silver are often considered a more stable investment compared to stocks because they are tangible assets with intrinsic value that are less subject to the fluctuations of the stock market.

Other alternatives include REITs (real estate investment trusts), where your investment is effectively a share of a property portfolio; and commodity baskets, where your investment is tied to the value of a group of “real assets” such as wheat, or industrial metals. 

The easiest place for new investors to start is in Funds, where the decision-making at a company level is made by an investment professional, but you can select funds with specific focuses such as disruptive growth or environmental sustainability. These allow you to build up your experience researching specific types of companies as funds are required to publish their largest investments, which is a good place to start in finding individual companies that may be of interest if the sector or industry is new to you. There are different types of funds available, and the most popular brokers (places to buy them) will offer several types from several investment institutions – in the UK, the most used brokers are Freetrade, Hargreaves Lansdown, and AJ Bell. 

Key to any investment decision is the reasoning underpinning it, and you can build that from an array of resources, including your own knowledge or experience of a sector or industry. We have an introductory list available here, that details some of our favourite resources. Additionally, on the information page of most investments, you can expect to find a “Key Investor information Document” that has a brief summary of what the product is, which is helpful when narrowing down your choices. If you have specific questions, don’t be afraid to seek out professional guidance or investment communities such as FemaleInvest,  MWHQ or YourJuno.

Women have a wealth gap that urgently needs closing. Muslim women and our cultural richness means this gap is usually much bigger than many of us realise and are quoted in the papers, as the wealth gap also varies by race and ethnicity.   

By seeing the virtues of your faith in the profile of a good investor, I hope you’re feeling inspired to use those practices and take control of your investing and financial management. 

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References

1. Barber, Brad; Odean, Terrance.  “Boys will be Boys: Gender, Overconfidence, and Common Stock Investment.” The Quarterly Journal of Economics.
2. Brinson, Gary; Beebower, Gilbert. Determinants of portfolio performance. Financial Analysts Journal.
3. J.P. Morgan Asset Management. “Guide to The Markets”. JPAM.
4. FINRA Investor Education Foundation. “The Financial Capability of U.S. Adults – Investor Education Foundation.” NFCS 2016.
5. Kinnell, Russell. “Mind the Gap 2016.” Morningstar.