Why is our advice simple?

 

Most of the time you will find us at Canadian Islamic Wealth sharing with you simple and easy ways to grow your wealth in a halal way. Many of the suggestions we have are things you may have heard before, found online and may not be all that complicated. But Why?

 

In our humble opinion, the best advice, especially for people starting their investment journey, is simple, easy to understand, and easy to do consistently. Advice that is difficult to implement rarely gets implemented, advice that is difficult to understand often is ignored and advice that is difficult to do consistently tends not to yield very good results.

So, if you are looking to begin your investment journey, first, you should ask yourself why you are investing. Second, you should start by investing a small amount. An amount you will not miss, an amount you will not touch, an amount that feels like you have not done anything. For some that is $500, others $50, others $50,000. Either way, it is easy and feels like nothing. finally, you should aim to invest a little bit regularly, again, $50, $100, $200 per month. It should feel easy like it is nothing. Over time, this really adds up and you begin to feel a sense of accomplishment and financial freedom.

Overall, we choose to give simple and easy financial advice because we know it produces results and is easy for our clients to implement.

A Tale of Two Insurance Policies: The Reality

If you have done any browsing of the internet in recent months/years, you have probably stumbled upon videos and articles discussing Life Insurance. Specifically the benefits of Term Insurance vs. Permanent Life Insurance. The scenario goes something like this:

Imagine two friends Bob and Doug. Bob and Doug are both 40 years old and are looking into purchasing life insurance as a way to pay off debt if something happens to them. Doug is really excited about the permanent life insurance policy he just bought. Although he realizes he is paying 10x more than his friend Bob, he likes the fact that his policy is permanent and down the road, if he doesn’t need it anymore he will be able to get what he put in back plus some profit.

Bob is also happy with his insurance choice. “Why pay more when I don’t have to?” Bob thinks to himself.

After they have painted this scenario out, they will say.  Although it may appear that Doug has the better deal ( he gets back money at the end of his policy plus some returns) then Bob (he gets nothing, if he doesn’t die that’s money down the drain), if bob were to invest the difference in their premiums over a 20 year period, assuming a return of 7% per year, Bob would end up ahead ($178,969 vs. $122,316).

The Problem

While I don’t necessarily disagree with the math, I do disagree with an all else equal scenario they often use to make this point. What the scenario above does is suggest that if all else were created equal and Bob invested the difference in his premium he would end up ahead. The problem with this way of thinking is that it is rare all things are ever created equal.

Firstly, Bob may not be able to invest the difference which is why he chose the cheaper insurance option. Generally speaking most people choose insurance based on their ability to afford the premiums.

Secondly, Bob may not be disciplined enough to invest the difference anyway. If Bob really did have the ability to afford $380 per month would he save the extra $340 per month in an investment. Unlikely, he would likely pay the minimum premium maybe save an additional $100 per month and spend the rest (the way most people do).

Thirdly, Bob may have a great family medical history compared to Doug. Doug may have chosen the permanent plan because his family has a history of heart diesase, cancer or stokes. If he chose the Term option, he may not be able to get insurance when the term plan expires, compared to Bob who has no family medical history.

 

The reality is, many of the scenarios you see in regards to Life Insurance or any other type of investment use “all else created equal” scenarios to make it seem like one is clearly better then the other and should be a no brainer. However, everybody is different and what may be a great idea for someone could lead to a financial disaster for another. The best thing to do is to speak with a professional (obviously I mean me) and work out the different scenarios and it never hurts to get a second opinion (especially if it agrees with my opinion).

 

 

5 Tips for When Investments Go Down.

In the last few weeks, we have seen some ups and downs in the investment market. Nothing new, the market goes up at times and goes down at other times. Even though September was not a great month for investors, the overall investment market is still up 15% in 2021. Most years see gains of 6%-8%.  The problems tend to start when investors see a loss in their accounts. Human beings are emotional and when we see our investments drop in value we equate it to the hard work we’ve put in saving, working, and sacrificing. To see some of that work “evaporate” makes us do irrational things and can cause us to make expensive investment mistakes. Here 5 tips to help you remain calm during a period of market volatility.

 

  1. Reassure yourself that this is what makes my investment Halal.

We do not like to lose money. But the reality is when it comes to your investments being halal you should be earning a profit when everybody is earning profit. You should lose when everybody else is losing. Know that these days of losses and investments going down are proof you have invested in something halal and this puts you in good standing with Allah SWT.

2. Remind yourself why you are investing.

Are you investing for your kids education? Are you investing for your retirement? Are you investing for a trip to hajj? Unless you are planning to use the money in the next few days, waiting and being patient is not going to hurt you. Further, over time the markets have historically always gone back up after a period of being down.

3. Re-examine what you are invested in?

Are you invested in stable and profitable investments or are you gambling? If you are invested in good profitable companies, ask yourself will the companies you are invested in stop selling their goods and services now that the market is down? If the answer to this question is no then hold on to your investments. If the answer is yes, it might be worth exploring alternatives.

4. Buy More!

If you know you have good investments, when the markets go down, you have an opportunity to get them at a cheaper price. Imagine going to a store and a laptop costing $1000. If you go to that same store on boxing day or black Friday, that exact same laptop will be selling for $800. Obviously, we would rather buy the laptop at a discount. Think about your investments in the same way. When the markets go down, you can buy more investments at a discount.

 

5. Tax-Loss Selling

If you truly made a bad investment and that investment lost money. You could sell the investment at a loss and use it to offset taxes on capital gains. It is always a better strategy for the investments you make to be profitable, however, in some circumstances, this tax-loss selling strategy could be beneficial.

Overall, when markets go down it is best to try and remove our emotions from the situation and think logically and critically. We need to do our best to remain calm and wait out the volatility. Remember historically, the markets have always come back.

 

Disclaimer:

Articles on this website contain opinions of the writer and may not reflect the opinions of Global Maxfin Investments Inc. The information contained herein was obtained from sources believed to be reliable, but no representation, or warranty, express or implied, is made by the writer, or Global Maxfin Investments Inc., or any other person as to its accuracy, completeness, or correctness. This website is not an offer to sell or a solicitation of an offer to buy any of the securities.

Two Types of Riba (Interest)

Riba can be simply defined as excess. Within the context of Islamic Finance Riba can be broken down into two major categories. Riba an Nasiyah and  Riba Al Fadl.

Riba An Nasiyah

Riba An Nasiyah is the primary and most common form of Riba (Interest) in the modern-day. This is a type of loan where money is lent out with a term of repayment and an excess amount (interest) is clearly defined in the contract. The prophet saw said, ” Every loan that draws profit is one from Riba”. It is also quite clearly defined in the Quran 2:275-279. Modern-day mortgages, car loans, student loans, and personal loans all fall under this category.

 

Wisdom Behind the Prohibition of Riba an Nasiyah

Firstly, we should realize that there is nothing in the entire creation of the world which has no goodness or utility at all. But it is commonly recognized in every religion and community that things that have more benefits and fewer harms are called beneficial and useful. Conversely, things that cause more harm and offer fewer benefits are taken to be harmful and useless. Even the Quran, while declaring liquor and gambling to be haram, proclaimed that they do hold some benefits for
people but the curse of sins they generate is far greater than the benefits they yield. Therefore, these cannot be called good or useful; on the contrary, taking these to be acutely harmful and destructive, it is necessary that they be avoided.

The case of Riba an Nasiyah is not different. Here the consumer of Riba does have some casual and transitory profits coming, but its curse in this world and in the hereafter is much too severe compared to this benefit and even in this world most revenue earned from Riba is quite low when compared to other halal opportunities. The Riba consumer suffers both spiritually and financially because they could have used this money in a more productive manner. Further, the issuer of this riba-based debt contributes to a society ridden with debt which slows down the rate at which people spend, consume and donate.

 

Riba Al Fadl

Riba Al Fadl is rarer in modern society but still exists. With Riba Al Fadl it is impermissible to exchange the same type of goods for goods of greater or lesser quantity/ quality. For example, you can not exchange 1lb of dates of lower quality for 0.5lb dates of higher quality. This falls under Riba Al Fadl.  In fact, there are six items that are expressly prohibited to do this with. Gold, Silver, Dates, wheat, salt, and barely. If extrapolated this would include most items that are the same in nature.

The Prophet (Saw) Said :“Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in
exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (Riba). However, sell gold for silver anyway you please on the condition it is hand-to-hand (spot) and sell barley for dates anyway you please on the condition it is hand-to-hand (spot).”

 

Wisdom Behind the Prohibition of Riba Al Fadl

Mainly this prohibition is to keep things fair and to close any backdoors to other types of Riba.

Understanding RRSPs & First Time Homebuyers Plan

There are many members of the Muslim community looking for the most efficient and cost-effective way to save up for their down payment for a house. And for many of the bigger cities in Canada, these down-payments can range from $30,000-$40,000 to $100,000-$150,000. The reality is this is a lot of money for your average Canadian and requires a bit of planning to accumulate it in an efficient manner. One of the strategies we often recommend for families is accumulating money in an RRSP and a Spousal RRSP. By using the RRSP you can accumulate $35,000 under your name and $35,000 under your spouses
name. By doing this it should save you between $20,000- $35,000 in taxes. Further, under the first-time home buyers plan. You will be able to withdraw $35,000 each to put towards the down-payment on your first house.

How does it work?

First things first, You have to contribute money to your RRSP and save on taxes. This could be any
amount up to $35,000 per person. $35,000 is the maximum amount that can be withdrawn from the RRSP. So you and your spouse can
withdraw a total of $70,000 from the RRSP for the first-time homebuyers plan.

Note: If you have previously owned a home in Canada you cannot withdraw money under the first-time homebuyers plan. This seems obvious but I have had a few clients ask me this question.

The money in the RRSP must remain in the RRSP for 90 days in order for it to be eligible to withdraw under the first-time homebuyers plan. After you have successfully used the money from the RRSP for the First-time homebuyers plan you will have two years before you must begin repaying the money. You must repay the money to your RRSP at a rate of 1/15th per year. If you do not repay the money that you did not repay will be subject to income tax. Therefore if you took out the $35,000 from your RRSP after 2 years you have to put back $2333 per year or $194.44 per month.

Things to keep in mind:
1) First-time home buyer withdrawal only works on your First House
2) Money must remain in the RRSP for 90 days prior to first-time homebuyer withdrawal
3) Repayment begins after 2 years of the FHBP being used
4) You must repay 1/15th per year of what you took out.

Tax- Loss Harvesting/ Selling

Tax-Loss Harvesting/ Tax-Loss Selling
There has been some inaccurate information floating around the internet lately about ways to save on taxes using losses in your investments. This strategy is known as Tax-Loss Selling or Tax-Loss Harvesting.

The Strategy:

Basically, if you have made an investment, in general, it is unwise to sell that investment at a loss. However, the exception to that is if you do not see a scenario in which the investment will recover, then you can sell the investment at a loss and use it to your advantage from a tax perspective.

How People Think It Works:

I invest $5000 in investment ABC. That $5000 I invested in ABC becomes worth $2500. I have lost -$2500. I sell the investment at a loss and use that -$2500 to lower my INCOME TAX (this is wrong).

How it Actually Works:

I invest $5000 in ABC investment. That $5000 becomes worth $2500. I have lost -$2500. I sell ABC Investment at a loss and use that -$2500 to offset my Capital Gains Tax (this is right).

You can only use a loss to offset a gain from a tax perspective. So if you had $5000 worth of DEF investment and it became $10,000. You Would have a $5000 GAIN. If you bought $5000 of ABC Investment and it became worth $2500. You would have a -$2500 LOSS. This loss can make it so you only pay Capital Gains tax on $2500 GAIN instead of $5000 GAIN.

Don’t create a tax problem for yourself by trying to offset your INCOME with a CAPITAL LOSS. The CRA will find you!

Is it Halal to Invest in Gold?

 

Let’s get right to it! Is it halal to invest in gold? The answer is yes! Of course, it is halal. Back during the time of the prophet (PBUH) most trade was done using gold and silver coins or simply trading one item for another. Therefore, investing in Gold, Silver and other precious metals is halal.

Just because something is halal does not necessarily make it a good investment or even the right investment for you and your family. That requries some research, thought, and in-depth analysis of your situation. If you are going to invest in gold here are some things to keep in mind:

1) Why are you investing in gold?

Is it for diversification? Many people add gold to their portfolios to diversify their investments and their downside risk. Many studies show that there is an inverse relationship between how the equity market performs and how gold performs. Therefore, many people invest in gold to limit some of their downside risk and
use it as a hedge against a volatile market.

 

2) Are you speculating?
Often I will get calls from clients asking me to move their ENTIRE portfolio into gold. Specifically because they read an article on how Gold prices will soar or equity prices will plummet. Even if the article ends up being right, this is an extremely risky maneuver based on speculative data. It could be catistrophic and ruin long-term financial plans. Avoid speculating especially with large amounts of money.

 

3) How will you invest in Gold, Silver and other precious metals?

Consider how you intend on investing in Precious metals. You have 3 options. Firstly, you could buy physical bullion. Gold coins, Silver coins, etc. If you choose this option you must considerwhere you will store them and how quickly you can liquidate (sell) the precious metals if you need cash. Another thing to consider is the point of entry. Gold is expensive and you may need to come up with a large amount of cash to purchase physical bullion. Secondly, you could buy individual shares or funds of precious metal mining companies. This would certainly give you exposure to precious metals and the point of entry is generally lower then buying a physical gold block or coin. The drawback is, the company could have excessive debt and other financial dealings that are impermissible in Islam. A third option is to invest in bullion funds, you get the benefit of investing in precious metals without having to worry about what the business is doing, they are easy to liquidate and the point of entry is relatively low. Some of the drawbacks are you do not have the physical gold in your possession and there are management fees associated with these funds.
The reality is, investing in Gold and other precious metals is halal. And it is something worth considering as an addition or compliment to your current portfolio. Like anything else it should be considered along with your goals, your risk tolerance and other factors.

Always do your research and Allah Knows best.

Jazakallah Khair

Most Common Financial Goals for Muslims

Over the last few years, we have been working with Muslims across Canada so that they can achieve their financial goals in a halal way. Whenever we work with clients we like to treat their circumstances as unique and make sure everyone who is a client of Canadian Islamic Wealth receives a financial plan. That being said, there are some common goals that many of our clients share. So we have compiled a list of the most common financial goals for muslims.

1) Buy a house

Almost every call, email or inquiry we get has Muslims asking if there is a halal way to buy a house. For many, this is simply out of reach. Either, they go to the bank and get an interest-based mortgage or they choose a halal option which requires a 20% down payment and is usually more expensive. Whatever the goal, we try to help muslims get their downpayment together more quickly and find the best choice for buying a home.

2) Paying for Kids Education

The average cost of a college degree can be anywhere from $6000-$10,000 per year for undergrad. For things like medical school, law school and dental school it will be even more expensive. Every Muslim with small children realizes that education is expensive and parents who can afford to, want to help their kids go to university or college and achieve thier educational goals. This is an amazing thing and helps kids stay away from huge amounts of student debt. We help our client maximize the grant money they can get from the government and invest the money in a halal way so that there is enough for university.

3) Retirement

We all realize that at some point we will all be to old to work. Many Muslims come to us with that realization and want to plan out their retirement. The main things we look at is regular investing, income needs in retirement and taxation. If we can solve those 3 issues retirement will be a breeze.

 

4) Saving for Hajj

Hajj is exepnsive. It can cost upwards of $12,000 per person to go to hajj. We recommend two things. First, make the intention you want to go to hajj. Second, start taking the necessary steps to go to hajj. If you can afford $100 per month you should be able to afford hajj in 5-6 years. If you can affor $500 per month, maybe 1-2 years.

 

Everybody we work with has a unique set of circumstances and goals that we are committed to catering to. That being said, these are some of the most common goals muslims have when it comes to their finances. If any of these sound like you, book a free call with us and we can share our strategies and expertise.

Investing: Advisor or DIY?

With the internet, technology, and an abundance of research now more than ever investors are asking themselves, should I still work with an advisor and pay their fees? So this article is going to look at the benefits and costs of working with an advisor as well as look at the benefits and costs of doing it yourself investing.

DIY Investing Benefits

Some of the benefits of DIY Investing are:

  1. Lower fees & Transaction Costs
  2. More flexibility in what you invest in
  3. Potential to make riskier and more profitable investments
  4. Forces you to become financially literate.

Overall you may save money, have more investment choices and become more financially literate when doing your own investments. This does come with some drawbacks.

Some drawbacks of DIY Investing are:

  1. More Time consuming
  2. Emotional mistakes may cause huge investment losses
  3. Research is less focused
  4.  Tax planning is generally overlooked by DIY Investors

 

DIY investing takes up a lot of time. With the amount of research and planning involved you need to ask yourself if you would make more money doing what you are best at (being a doctor, engineer, lawyer, accountant, etc) if you would make more money doing that instead of managing your own investments.  There are some benefits of going it alone but being emotional with your money, being more sporadic in your research, and overlooking tax consequences of various investments and strategies are all things to keep in mind on whether DIY investing is right for you.

 

Using an Advisor

I am biased but here are some benefits of working with an advisor:

  1. Keeps clients emotions in check when making investment choices
  2. Frees up time so clients can focus on other things
  3. Can help aim your investment decisions
  4. Has a larger overall financial plan for you

Overall an advisor will likely have a diverse offering of investment products and choices and may be able to help keep you calm in turbulent markets. Working with an advisor can also have drawbacks.

Some of the drawbacks to working with an advisor are:

  1. More expensive.
  2. Advisors can be dishonest and not what is in your best interest (do extra due diligence)
  3. Advisors will likely be more cautious with client investments this could cost you returns
  4. Advisors will have other clients and may not always be able to make you a top priority.

Certainly, there are many benefits to working with an advisor. I am an advisor and I like to think all clients who work with an advisor will be better off. However, that is not the case. There are many advisors who charge outrageous fees, behave dishonestly, and do things that are not in the best interest of their clients.

What to do?

Overall whether you want to do your own investing or hire an advisor it is imperative to do enough due diligence to make sure it is the right fit for you. If you decide on an advisor make sure your goals are being addressed and make sure they have a good track record. If you decide to do it yourself make sure you have enough discipline to ride out turbulent markets and make sure you have an overall strategy. Of course, I am biased. The best thing you can do is sign up as a client of Canadian Islamic Wealth.

 

 

Halal RDSPs

RDSPs (the registered disability savings plan) allows parents to save for their children who have a disability and qualify for the disability tax credit. Many Muslim parents have children that require this extra assistance and financial support but want to know is RDSPs Halal? The short answer is YES. However, we need to examine how RDSPs work, how you can benefit, and how they ought to be invested to stay Halal.

How does and RDSP work?

Children who qualify for a disability tax credit also qualify to open and Registered Disability Savings Plan (RDSP). The maximum lifetime contribution limit for an RDSP is $200,000. There are no yearly limits for how much you can contribute to an RDSP however limits do exist for the Canada disability savings grant and the Canada disability Savings bond.

Canada Disability Savings Grant

The Canadian government can add 100%, 200%, or 300% in disability grant money to your contribution. From the day your child is born until they turn 18. The beneficiary (your child) can get grant money up to $3500 per year and $70,000 over the lifetime of the RDSP. The grant amount is calculated based on contribution levels and household income. If your family income is under $97,000 you get a 300% grant on the first $500 contributed, 200% on the next $1000 contributed. $1500 in contributions gets you $3500 in grants or a total account value of $5000 for one year.
If you earn more than $97,000 per year you get 100% of every dollar contributed up to $1000 per year.

Canada Disability Savings Bond

If you are in a low-income family you may qualify for the Canada Disability savings bond. If you earn less than $31,711 per year the government will give you a disability savings bond of $1000 per year without you having to make any contributions. If you earn between $31,000-$48,000 you will get an amount proportional to the $1000 bond based on your total income. If you earn above $48,000 you will not qualify for the bond.

How can you benefit?

Obviously opening an RDSP for a disabled child can help you save and invest for their future. Further, this can be a way to create income for them down the road with investments and payments out of the disability savings plan. Many families use this as a way to help ensure their children with disabilities are cared for in the long-term.

How to make it halal?

Like any other account in Canada it is neither halal nor haram it all depends on how the money inside the RDSP is used that determines its permissibility.  Most carriers of the RDSP are banks and although you may be able to find some halal investment options I believe having an advisor that can actually guide you through it is paramount. That is why if you open an RDSP through us we can make sure it is set up at one of the providers and the investments are looked after in a halal way.