I am in a dilemma whether to opt for company offered 401K or no. I checked with my employer and they don’t offer Self Directed Brokerage Account(SDBA) and the only option available is to select from offered funds.
After viewing all the options, I think these two are the best options i.e (VINIX and VWUAX).
So both of these have Non-Compliant and Questionable stocks.
Wanted to know which one should I opt for or just don’t invest in 401K.
I have never invested in 401K before because of lack of Shariah Compliant options but I do want to start putting some money into my retirement.
Is anyone else investing in either of the 2 options(VINIX/VWUAX) for 401K.
The general advice I’ve seen from scholars is to opt for the fund with the lowest exposure to non-compliant holdings and then purifying gains on an annual basis.
If you haven’t already, I suggest reading the following articles on the Zoya Blog.
Thanks for the quick reply @saad .
Wanted to understand more on the questionable stocks? Do we need to purify that % as well?
Also after reading the articles, seems like calculating the purification part can be a bit tricky as this is the first time I will be doing 401K.
One more thing, ETF’s like SPUS/HLAL are Shariah compliant but they too have questionable stocks like MSFT/GOOGL etc, so are Questionable stocks considered Shariah compliant.
We created the questionable rating to flag revenue segments that fall into a gray area. For example, Alphabet Inc (GOOG) earns most of its revenue through advertising. While there’s nothing wrong with advertising itself, Alphabet’s policy permits ads that promote sites/products in the adult content, alcohol, and gambling space. Some scholars view this as impermissible, while others believe it’s permissible because the business operates as a platform and is not selling those products directly.
If you find a questionable holding in a shariah compliant ETF, it’s because their shariah board reviewed and approved it based on their methodology/mandate. With Zoya, we empower individual investors to decide which questionable categories they are comfortable with rather than imposing one viewpoint.
There are a few different ways to perform the purification process, but here’s the simplest method:
Let’s say your 401k is up $500 at the end of the year.
If 20% of the holdings in your 401k are non-compliant, donate 20% of $500 ($100) out of your cash savings.
Repeat the process again 12 months later.
Allah knows best!
*Disclaimer: Not financial/investment/shariah advice. Please consult a professional regarding your own unique situation.
Thanks once again for the reply @saad and clarifying the Purification part.
One final query on this, so for the 401K we have an employer match as well.
For Eg: my monthly contribution is $100 and employer also puts $100 as match.
At the end of year, my contribution is $1200 and employer contributions is $1200, so total $2400.
Now below 2 scenarios:
If the 401K value is say $2900 i.e its up $500, then I need to purify 20% of $500 only or $1700 (i.e amount its up + Employer contribution). i.e do we need to do anything for the Employer Contribution?
Say if 401K is at $2400 or less i.e basically down for that year, then in that case do I need to do any purification for that year?
My company does offer an SDBA within my 403(b) but has capped it at 50% of total investments (it’s very frustrating). Of the other funds, four large cap US stock funds seem reasonable, with compliant+questionable holdings at ~70% (Vftnx appears “best” at 55.36 c, 27.64 nc, 17 q, 72.36 c+q). But I was also wondering if just putting my other 50% in a money market fund would be less work, because the returns are way lower and I’d know that I’ll have to purify that entire half by a definite amount.