I am an employee of New York Hospital of Queens and due to religious purposes I can't deal with interest on money.
Mohammad, one of the biggest issues with investing through an employer sponsored retirement plan is the investments available inside the plan can be limiting in many ways. One mechanism that may be an alternative, depending on your full financial picture, is to work with a Registered Investment Advisor to help you create the appropriate Investment Policy Statement that governs the investments that are appropriate for you. If you cannot get access to the needed investments from your employer plan it sounds like you then cannot invest there. If that is true, not participating in the employer plan would allow you to participate in a Traditional IRA for retirement savings up to allowable annual contribution limits. From there you can tailor an investment policy statement that can provide you with appropriate investments to meet your requirements. A good advisor will understand your employment situation and be able to advise on other plans that might be available to you for even greater retirement savings amounts than what a Traditional IRA can provide. Your investment policy statement can cover other investment account types as well that are not qualified retirement accounts which may provide all the flexibility you need.
Hi Mohammed, keep in mind that a dividend is not interest, it is just the profits the company is paying you. While it is usually quoted as a % of the stock's price it is not interest. If your religion specifically says no dividends there are many stocks that do not pay them, however, that does not mean they won't in the future. It's at the discretion of the board of directors. Something to keep in mind if are employing your zero dividend strategy.
If you are looking for Shariah-compliant investments, Amana Funds and Azzad Funds are both specialists in this area in the US market. Amana provides equity funds only, and Azzad provides funds for equity and fixed-income with Sukkuk bonds that are halal.
Mohammad, I believe I understand your question. So, I first looked at the investment profile of Amana mutual funds (saturna.com/amana) - a mutual fund company that has been serving the Muslim community for years. Another such mutual fund company is Iman funds (investaaa.com), and another is Azzad Funds (www.azzadfund.com) . They all invest only in stock - no bonds or interest paying instruments to avoid conflict with the directives of the Holy Koran, which, of course, is one of the holy books that preaches the basic tenet of "Neither a borrower, nor a lender, be."
All three of these mutual fund families - and any holdings in their portfolio - would likely be acceptable for you. However - it is important for you to be aware that a DIVIDEND is NOT considered interest. It is a payment from the company derived from that company's excess cash flow based upon their operations. Some of the individual stocks in these funds DO pay dividends. For example, I looked into the Amana fund, and its largest holding in the portfolio is Amgen, Inc - the ticker is AMGN. Amgen currently has a dividend yield of 1.95%. So the dividend of Amgen has been deemed to be an acceptable holding, in accordance with the Holy Koran.
Why did I mention this? It is likely that you will not find any of the mentioned fund families in your 401k or 403b - whatever your retirement savings arrangement is (I have never seen them in one). Therefore, you should look for funds very SIMILAR to those funds. The Amana Growth fund, for example, invests almost exclusively in Large Cap Growth Stock - stocks like Amgen, Apple, Pepsi, Johnson & Johnson, Qualcomm, etc. So - since you may not have those exact funds in your retirement savings account - I would think that an INDEX fund (S&P 500 index) or a Large Growth fund, whose portfolio does not hold bonds would suffice for the intent of the Holy Koran or other religion's prohibition against lending money and receiving interest (usury).
Your safest bet against inadvertently holding bonds is an index fund or ETF, since they are not allowed to invest in anything other than exactly those stocks in the index. They may pay dividends - but again, dividends are NOT interest. However, if you are trying to follow the Holy Koran in particular, index funds may have other stocks that are forbidden by Sharia law (tobacco, for example).
Take a look at what you have available, then check for spiritual guidance from your minister to see if he agrees with your assessment - that way you can invest with a clean conscience.
It is very possible that even an index fund would not meet your needs. If that is the case, then unfortunately, you would likely need to go directly to the fund companies I mentioned above - and open an IRA or other account directly with them. Or, you could open a brokerage account and pretty much pick and choose any of the individual stocks you want to buy - I would mimic the holdings of the Amana fund or whichever other fund you wanted to mimic. While you may not get all of the tax savings and potential matching dollars available to you in a 401k or 403b, saving on your own through an IRA and an individually registered account is still a great way to build wealth, and owning individual stocks versus mutual funds have the advantage of being a cheaper way to invest over the long term.
Jon Castle http://www.WealthGuards.com
Berkshire Hathaway could be an option for you, although keep in mind you need to research the company, and this is not a recomendation.
You might also want to consider a fund family such as "The Timothy Plan." Best wishes to you in the New Year!
Check out Aris Corporation. They have faith based and socially responsible portfolios that can be build as 100% and you can even make special requests as to what they do or do not include in their portfolios. Here is an example portfolio. This is not a recommendation, but simple an example of how a portfolio can look with your specifications. https://www.ariscorporation.com/895780.pdf
Mohammad, I give a lot of advice in the muslim community. You will find that there are differences of opinion as to what is allowed and not. The above mentioned funds don't completely eliminate interest, they just minimize it. Aris portfolio would not really work for Muslims. Most of the stocks in the SP 500 would not fit the criteria either. When a company borrows money and pays interest that would not be allowed according to most Muslim scholars. Berkshire also borrows money and pays interest so it would not be a good fit. Amana and Azzad get around this issue by only investing in companies that dont have too much debt, but that approach is not necessarily perfect. Some of the dividends you earn are from earnings from interest. I have designed several approaches to work these issues, my solutions are not perfect either. Please feel free to contact me.
Mohammed, you have the American Funds New World fund available in your 401(k). That pays no interest and invests in diversified emerging markets companies. It's rated a Morningstar 5-star fund, with excellent performance in the past. By the way, your current defined contribution plan at New York Hospital of Queens is rated Top 15% of its peer group by Brightscope, so please congratulate your administrator, Lorraine Orlando, and perhaps ask her to consider a brokerage link to allow you to invest in Amana and Azzad funds in the future as recommended by others.