I Kept Telling Myself My Investments Were Halal

# I Kept Telling Myself My Investments Were Halal Until I Actually Checked

There was a Wednesday night about two years ago when I finally opened the full holdings list of the ETF I'd been putting money into for over a year. I was on my laptop at the kitchen table, half eating leftover rice, half scrolling through ticker symbols I didn't recognize. I'd been investing $400 a month into a fund I thought was shariah compliant because someone in a WhatsApp group said it was.

It wasn't.

Not entirely, anyway. And that moment, that quiet realization that I'd been operating on assumption instead of knowledge, changed how I think about halal investing entirely.

Most of us are guessing

I think the majority of Muslims who invest are guessing. I don't say that to be harsh. I say it because I was one of them. I had this vague sense that certain funds were "halal" and others weren't, and I treated that binary like it was enough. Halal or haram. Clean or dirty. Pick the right ticker and move on.

But that's not how it works. Not even close.

Take SPUS, for example. The SP Funds S&P 500 Sharia Industry Exclusions ETF. It tracks the S&P 500 but screens out companies that don't meet shariah compliance criteria. Sounds clean, right? It is, broadly speaking. But do you know how many holdings SPUS has at any given time? Roughly 230 to 240 out of the 500 in the S&P 500. That means more than half the index gets excluded. And the holdings shift. Companies move in and out of compliance based on their debt ratios, their revenue sources, their business activities. This is not a static list.

If you bought SPUS in January 2023 and checked the holdings again in January 2024, the composition would be different. Not wildly different, but meaningfully different. And that matters when you're trying to purify your earnings or calculate zakat.

The screening is doing more than you think

Shariah screening for equity funds generally works on two levels. First, the business activity screen. Companies that derive significant revenue from alcohol, tobacco, gambling, conventional financial services, weapons, adult entertainment, or pork products get removed. That's the obvious layer.

The second layer is the financial ratio screen. And this is where it gets interesting. Even a company with a perfectly permissible product can fail shariah compliance if its debt to market capitalization ratio is too high, or if it earns too much interest income relative to its total revenue. The common thresholds vary slightly between screening methodologies, but a widely used benchmark comes from AAOIFI standards: total interest bearing debt should not exceed 30% of a company's average market capitalization over a trailing period.

So a tech company that makes halal software but took on massive conventional debt to fund expansion? Out.

This is why HLAL (the Wahed FTSE USA Shariah ETF) and SPUS don't hold identical stocks even though they're both screening from large US equities. They use different index providers and slightly different screening criteria. HLAL tracks the FTSE USA Shariah Index, while SPUS follows an S&P methodology. The result is two different portfolios that are both shariah compliant but not interchangeable.

The expense ratio conversation nobody wants to have

Here's something that genuinely frustrated me when I first started looking into this. SPUS has an expense ratio of around 0.49%. HLAL sits at about 0.50%. Compare that to VOO, the Vanguard S&P 500 ETF, which charges 0.03%.

That gap might seem small until you run the numbers over time. If you invested $500 a month into a fund returning an average of 8% annually over 20 years, the difference between a 0.03% expense ratio and a 0.50% expense ratio is roughly $15,000 to $18,000 in fees eaten over that period. That's real money. That's a used car. That's a semester of your kid's tuition.

Am I saying don't invest in halal funds because of fees? Absolutely not. I'm saying you should know the cost. You should factor it in. And you should ask yourself whether the fund you're in is actually doing enough to justify that premium, or whether you might be better off building a shariah compliant portfolio of individual stocks and cutting out the middleman.

Some people will be better off with the ETF. Many people, honestly, because stock picking requires knowledge and discipline that most of us don't have. But pretending the fee gap doesn't exist is not honesty. It's avoidance.

What about UMMA and SPRE?

UMMA, the Wahed Dow Jones Islamic World ETF, gives you international exposure with shariah screening. SPRE, the SP Funds S&P Global REIT Sharia ETF, tries to offer real estate exposure through shariah compliant REITs. Both serve a purpose if you're trying to diversify beyond US large cap equities.

But here's where I see Muslims making a mistake. They'll put everything into SPUS or HLAL and call it diversified because it holds 200+ stocks. It's not diversified in the way you think. Those are almost all US large cap companies, heavily weighted toward technology. If big tech has a bad decade, your "diversified" halal portfolio takes a serious hit.

Real diversification means different geographies, different asset classes, different sectors. And within the halal investing space, your options are more limited, which means you have to be more intentional, not less.

The purification problem

Even shariah compliant funds can hold companies that earn a small percentage of revenue from non permissible sources. The screening thresholds allow for some tolerance, usually up to 5% of revenue from impermissible activities. This means that a portion of your dividends may need to be purified, meaning given away in charity without the intention of receiving reward.

SPUS publishes purification data. So does HLAL. But I've talked to brothers and sisters who have been investing for years and have never once purified their dividend income. Not because they don't care, but because nobody told them they needed to.

If your fund reports a purification ratio of, say, 3.2%, and you earned $600 in dividends last year, you'd need to give away about $19.20. Small amount, yes. But it adds up over time, and more importantly, it's a matter of your relationship with Allah.

Allah tells us in the Quran: "O you who have believed, spend from the good things which you have earned and from that which We have produced for you from the earth. And do not aim toward the defective therefrom, spending from that while you would not take it yourself except with closed eyes. And know that Allah is Free of need and Praiseworthy" (Al Baqarah 2:267).

That verse sits with me every time I review my portfolio. Spend from the good things. Not the questionable things. Not the things you hope are fine. The good things.

The real truth about halal investing

The truth is that halal investing is harder than conventional investing. The fund options are fewer. The expense ratios are higher. The screening methodologies require you to actually understand what you own. The purification calculations add another layer. And the zakat implications of holding these assets in different account types (taxable brokerage, Roth IRA, traditional 401k) create questions that most online zakat calculators don't handle well.

But none of that is an excuse to opt out. And none of it is an excuse to opt in blindly either.

The real work of halal investing isn't picking the right ticker symbol. It's building the knowledge to understand what you hold, why you hold it, and what obligations come with holding it. It's reviewing your fund's holdings at least once a year. It's calculating purification. It's asking hard questions about your 401k options at work and being willing to hear uncomfortable answers.

I know a brother who discovered that every single fund option in his employer's 401k was non compliant. He had to make a difficult choice: forgo the employer match or invest in something he couldn't justify before Allah. He chose to forgo the match and open a self directed account instead. That cost him real money in the short term. But he told me he sleeps differently now.

I think about that a lot.

Where this leaves you

If you're reading this and you've been investing without checking your holdings, go check them. Tonight. Open the fund fact sheet for whatever you're invested in and read the top 25 holdings. Google the screening methodology. Find the purification percentage. Run your own numbers.

And if you discover something uncomfortable, don't panic. Adjust. Learn. Move forward with more knowledge than you had yesterday.

This isn't about perfection. It's about refusing to be careless with something Allah entrusted to you.

I am not a certified financial advisor. Nothing in this article constitutes financial advice. Please consult a qualified professional for your specific situation.

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