Islamic investing

Q

What is “Islamic investing” all about? — T.L., Riverside A

Investors who adhere to Islamic tenets are restricted from investing in certain kinds of companies.

Islamic investing avoids companies with alcohol, gambling, pornography or pork businesses. These investors may also avoid companies involved in tobacco, weapons of mass destruction or media, among other industries. (“Socially responsible” non-islamic investors avoid some of these industries, too.)

Following sharia (Islamic law), investors also respect a prohibition against paying or earning interest. That means avoiding most financial services companies, such as Western-style banks and insurers — and many companies that are carrying significant debt. In some cases, if an investor owns shares in a company that earns interest, that investor might donate a representative sum to charity anonymously, to “cleanse” the portfolio of the interest.

Avoiding debt-heavy companies can make a sharia-compliant portfolio less risky, but that’s partly offset by ignoring many industries and concentrating assets in others, potentially resulting in under-diversification. Islamic investing also avoids bonds, annuities and even short-selling stocks, which is seen as gambling. Real estate investments, and other asset-based income-producing investments, are allowed.

There’s more to it all, of course, and you can learn more by searching on Google for “Islamic investing.”

Q Where can I learn about real estate investment trusts (REITS)? — P.D., Jacksonville, North Carolina

A REITS are companies that typically own and operate real estate properties such as apartment buildings, malls, medical facilities, industrial sites and so on. Learn more in “The Intelligent REIT Investor: How to Build Wealth With Real Estate Investment Trusts” by Stephanie Krewson-kelly and R. Brad Thomas (Wiley, $30), or at our Millionacres.com sister site.