7 Halal Ways To Beat Inflation

Inflation is rising worldwide, affecting advanced, emerging, and developing economies, though for different reasons. Wherever you are, it’s important to protect your finances and investments from inflation.

A good first step is to determine the inflation rate in your area and then adjust your portfolio using various financial strategies. In this article, I’ll share seven halal strategies to safeguard your finances from inflation. To reduce its impact, it’s essential to have a well-thought-out plan that includes a mix of assets and strategies.

This should be done regularly, not just during times of inflation. Review your bank statements carefully, look at each transaction, and identify any expenses you can cut. This will not only give you some financial relief but also help you get a clearer picture of where you stand financially. For your monthly payments, it’s a good idea to check if you’re getting the best deals on any memberships or subscriptions you have.

Unfortunately, wages have not kept pace with the rising cost of living, leading to concerns that Britain may experience its most severe household income squeeze since the 1970s. To assess your current financial situation, tools such as the one provided by the UK’s Office for National Statistics (or a similar tool for those in the US) can help calculate how much your salary would need to increase to match the current inflation rate.

As the cost of living rises, this can serve as a good starting point for initiating a conversation with your manager about a potential salary increase. It is advisable to present a well-prepared and compelling argument that goes beyond inflation alone. For instance, you might highlight your improved performance, recent achievements, or the value you bring to the company. If you have received job offers from other employers, it is also acceptable to mention this—though only if the offers are genuine.

In many cases, employees find that salary increases are granted when they submit their notice, as employers often prefer to retain valuable staff rather than endure the lengthy and costly process of recruitment. If you are fortunate enough to have a job offer elsewhere, it is entirely appropriate to negotiate for the best possible salary with both your current and prospective employer.

Additionally, one effective strategy to ensure your wages keep pace with inflation is to request an inflation-adjusted salary. According to Mufti Faraz Adam of Amanah Advisors, this approach is permissible from a shariah perspective.

Muslims cannot benefit from traditional savings accounts in conventional banks because these accounts earn interest, which is considered haram (forbidden). As a result, many Muslims choose to keep their savings in cash accounts that do not generate any returns. However, the downside of these accounts is that as inflation rises, the value of your money decreases.

If you are lucky enough to live in a country with access to a shariah-compliant bank, you can use a halal savings account that allows your money to grow through shariah-compliant investments. Typically, you can choose between a fixed-term deposit account (where your money is locked in for a set period) or a notice account (which allows for earlier withdrawals). Generally, the longer the fixed term, the better the return. Keep in mind that if you withdraw your money before the term ends, you may face penalties.

It’s wise to compare different options to find the best deal. Consider how quickly you need access to your funds and whether you have any major investments planned. While you may not fully keep up with inflation by putting all your money in a halal savings account, these accounts can be a good choice for short- to medium-term savings since they are low-risk and offer modest rewards.

Investing in stocks tends to be the highest risk-reward strategy. While the potential returns can significantly exceed the inflation rate, it’s crucial to invest according to your risk tolerance. Failing to align your investments with your comfort level can result in poor decisions and potential losses.

5. Commodities

Commodities can serve as a hedge against inflation and should be a part of your investment portfolio. They encompass a broad range of assets, including metals, oil, and electricity. However, commodities can be volatile; as prices increase, so do commodity values. We’ve recently seen this volatility due to the Russia/Ukraine conflict, which has caused energy prices to surge.Gold, a well-known commodity, has historically been viewed as a safe investment, though it has experienced some fluctuations. Additionally, as governments raise interest rates, you may not see benefits from higher yields on gold.To ensure a transaction is shariah-compliant when buying commodities, you must have actual ownership of the underlying asset. Many commodities trading platforms operate on contracts for difference (CFDs), which are not shariah-compliant because you do not own the assets you’re trading.One way to invest in commodities is through exchange-traded funds (ETFs). Here are some shariah-compliant options available on US-listed exchanges:- abrdn Physical Precious Metals Basket Shares ETF (Ticker: GLTR)- iShares Gold Trust (Ticker: IAU)- iShares Silver Trust (Ticker: SLV)- SPDR Gold Trust (Ticker: GLD)- SPDR Gold MiniShares Trust (Ticker: GLDM)

6. Sukuk

1. Asset-Backed: Sukuk must be linked to tangible assets, which differentiates them from conventional bonds. This structure aligns with Islamic finance principles that prohibit earning interest (riba).Ownership of Assets: When you purchase a sukuk, you gain ownership of the underlying asset, allowing you to share in the profits generated by that asset.Shariah Compliance: Sukuk adhere to Islamic law, making them an appealing investment for Muslim investors looking for halal (permissible) investment opportunities.Diverse Types: There are various types of sukuk, including:

2. Sukuk Ijarah: Based on leasing.Sukuk Murabaha: Based on cost-plus financing.Sukuk Musharakah: Based on partnership.
Benefits of Investing in Sukuk:

3. Inflation Hedge: As you mentioned, sukuk can provide a hedge against inflation if structured correctly, with returns potentially exceeding inflation rates.Risk Diversification: Investing in sukuk can help diversify an investment portfolio, especially in a low-interest-rate environment.

Accessibility and Investment Vehicles:While sukuk may not be as widely available as conventional bonds, investing through specialized funds can provide access to these instruments. The examples you provided (like the SP Funds Dow Jones Global Sukuk ETF and Azzad Wise Capital Fund) are great ways for investors to gain exposure to sukuk without needing to purchase individual issues.

7. Real Estate

Your overview of the current real estate market and investment options is clear and covers several important aspects. Here’s a deeper dive into some of the points you made, as well as additional considerations for potential investors:

Current Real Estate Market Dynamics:

1. Price Trends: The combination of low interest rates and high demand during the pandemic created a competitive housing market, leading to price increases. While this trend has benefited many homeowners and investors, it’s essential to stay informed about market shifts.
2. Interest Rate Impacts: As central banks increase interest rates to combat inflation, financing costs for mortgages and loans may rise. This could potentially cool down demand, leading to slower price growth or even declines in some markets.

Investment Options:

1. Direct Purchase: Buying property directly allows for more control over the asset but requires substantial upfront capital and ongoing management responsibilities.
2. Property Investment Companies: These companies pool funds from multiple investors to invest in real estate projects. This method allows for diversification and reduces individual financial burden while potentially offering solid returns.
3. Real Estate Investment Trusts (REITs): Investing in REITs provides exposure to real estate without the need to directly manage properties. They typically offer dividends and can be traded like stocks, making them a liquid investment option.
4. Shariah-Compliant Options:

• Yielders: This UK-based platform offers Shariah-compliant property crowdfunding, enabling Muslim investors to participate in real estate projects with lower capital requirements.
• SP Funds Global REIT Sharia ETF (SPRE): This ETF provides exposure to a diversified portfolio of Shariah-compliant REITs, making it a convenient option for investors looking for halal investment opportunities.

Important Considerations:

• Financing Structure: If you’re considering financing a property purchase, be aware of how interest rate increases could impact your mortgage payments. Fixed-rate mortgages offer stability, while variable-rate mortgages can lead to higher costs as rates rise.
• Market Research: Always conduct thorough research and analysis of the real estate market in your desired location. Factors like local economic conditions, job growth, and demographic trends can significantly affect property values.
• Long-Term Strategy: Real estate is typically a long-term investment. Short-term market fluctuations may not significantly impact your investment if you plan to hold the property for an extended period.

In summary, while the current real estate market appears stable and offers various investment avenues, it’s crucial to remain vigilant about economic changes, particularly regarding interest rates. If you have more specific questions or need further information on any aspect, feel free to ask!