Glossary

Asset allocation

Asset allocation refers to creating a portfolio that distributes investments across multiple asset classes that are not closely correlated, such as equities, cash, real estate, foreign securities, and/or precious metals, to potentially reduce risk and volatility in your portfolio.

Benchmark

A benchmark is a basis of measurement used as a reference point. In investing, benchmarks are used as a standard to measure the performance of mutual funds, model portfolios, and other investments within an appropriate category.

Beta

Beta is a measurement of the volatility of an investment or portfolio or compared to the market as a whole.

BofAML US Corp & Gov 1-3 Yr® index

The Bank of America Merrill Lynch US Corporate & Government Master Index® tracks the performance of U.S. dollar-denominated investment grade government and corporate public debt issued in the U.S. domestic bond market, excluding collateralized products.

Credit quality

Credit quality is the primary method of evaluating the investment quality of a bond or bond mutual fund. The financial strength of bond issuers is rated by rating agencies such as Fitch, Moody’s, and Standard & Poor’s. Their ratings range from AAA (highly unlikely to default) to D (in default). Ratings of AAA, AA, A, and BBB are considered to be “investment grade.” Ratings of BB and below are considered below investment grade.

Diversification

Diversification is the practice of spreading money across a broad number of investments to reduce the overall risk in the portfolio.

Dividends

Dividends are payments of earnings or profits to shareholders. Mutual funds pay dividends to fund shareholders based on dividend income received from the stocks in their holdings and on realized capital gains from the portfolio.

Dollar-cost averaging

Dollar-cost averaging is a strategy that invests the same amount of money on a regular basis so you automatically buy more shares of a security when the share price is low and fewer shares when the price is high. Over time, this strategy can lower your average price per share.

Efficient portfolio

According to modern portfolio theory, an efficient portfolio is one that projects either the highest expected return for a certain level of risk or else the lowest level of risk for a certain expected return. Plotted on a graph, the curved line that connects these efficient portfolios is called the efficient frontier. See Monte Carlo simulation below.

ERISA

ERISA, the Employee Retirement Income Security Act of 1974, is a law that all qualified retirement plans are subject to and covered by. Plan sponsors (generally employers) have a fiduciary responsibility to exercise care and prudence in the selection and appropriate diversification of plan investments. Sponsors may even have liability for imprudent investment choices by their employees if their plan allows participants to select the investments in their account (“self-directed plans”). However, plan sponsors may be able to limit liability for investment losses that occur as a result of a participant’s exercise of investment control over his or her own account if you satisfy the requirements of Section 404(c) of ERISA.

Fatwa

A fatwa is a religious opinion issued by a Muslim scholar.

Gharar

Gharar is an Arabic word that refers to the element of risk or chance in a financial transaction or contract.

Halal

Halal is any object or action permitted by Islamic law. Halal investing is guided by the principles described in the Quran and Sunnah.

Haram

Haram is any object or action forbidden in Islam.

Highly compensated employee

For the purposes of an employer-sponsored, tax-advantaged retirement plan, a highly compensated employee is an individual who owned more than a five percent interest in the employing company during this year or the previous year, OR had compensation in the previous year of more than $115,00 if the preceding year was 2014, or of $120,000 if the preceding year was 2015 or 2016, and, at the discretion of the employer, was in the top 20 percent of employees in terms of compensation for that year. (These thresholds and the  salary figures are set by the IRS and are subject to cost of living adjustments.)

Maturity

Maturity refers to the end of a lending investment. On the maturity date of a bond, the principal and the final interest payment will be due. On the maturity date of an alternative investment such as a sukuk or participation bank deposit, the principal and any remaining distribution of profits will be due.

Money managers

Money Managers are individuals or firms hired to manage investment portfolios. Azzad performs a thorough due diligence review of all our money managers and regularly adjusts our money manager team to meet the best interests of our clients.

Monte Carlo simulation

A Monte Carlo simulation is a forecasting model or technique used to understand the impact of risk in financial markets. Monte Carlo simulations are often used to project possible movements of asset prices to determine an investor’s likelihood of reaching a financial goal. See efficient portfolio above.

Morningstar® MidCap Growth Category

The Morningstar® MidCap Growth Category measures the performance of mid-cap funds seeking capital appreciation by investing in mid-sized domestic stocks that are growth-oriented. The US mid-cap range represents the 20% of the US equity market that falls between small caps (the bottom 10% of capitalization) and large caps (the top 70% of capitalization). Growth is defined based on high price/book and price/cash-flow ratios.

Morningstar® Short-Term Bond Category

The Morningstar® Short-Term Bond Category measures the performance of bond funds investing primarily in corporate and other investment-grade U.S. fixed-income issues and typically have durations of 1.0 to 3.5 years. These portfolios are less sensitive to interest rates than portfolios with longer durations.

Probate

Probate is the legal process of settling an estate during which the validity of the deceased person’s wishes is proven, assets are collected and accounted for, debts and taxes are paid, and remaining probate assets distributed. May be costly and time consuming for larger estates; probate is also subject to public disclosure.

Purification

Purification is the annual cleansing process requiring any investment income generated from activities that violate Shari’ah-based investing principles be given to charity.

Quran

The Quran is the central religious text of Islam

R-squared

R-squared is a measurement that indicates what percentage of the historical movement of a security can be explained by movements in its benchmark index. A fund with a high R-squared shows that its movements have been in line with the benchmark, and a fund with a low R-squared has not acted much like the benchmark.

Rebalancing

Rebalancing is periodically shifting funds from one asset class to another to regain the ratios you determined were appropriate for your investment portfolio

Riba

Riba is the Arabic word for interest or usury

Russell MidCap® Growth Index

The Russell MidCap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell MidCap® Index companies with higher price-to-book ratios and higher forecasted growth values. The index is unmanaged and an investment cannot be made directly in this or any other index.

Safe harbor 401(k)

A safe harbor 401(k) is designed to satisfy the ACP test that applies to employer matching contributions. The safe harbor requires that you make a fully vested contribution equal to either: A dollar-for-dollar match of all non-highly compensated employee deferrals up to 3 percent of compensation and 50-cents-on-the-dollar match of deferrals between 3 and 5 percent of compensation, OR 3 percent of compensation for all non-highly compensated employees, regardless of whether these employees contribute to the plan. Employers using the safe harbor 401(k) rules must give each eligible employee a written notice of the employee’s rights and obligations under the plan that satisfies specific content and timing requirements.

Shariah

Shari’ah is the religious law or code of conduct of Islam

Standard deviation

Standard deviation is a statistical measurement of historical volatility. A stock having a high standard deviation indicates that it was volatile, while a stock having a lower standard deviation indicates that it was more stable.

Sukuk

Sukuk are securities or certificates specifically structured to comply with Islamic principles which forbid riba (the charging or paying of interest)

Sunnah

Sunnah is the practice or way of life instituted and taught by the Prophet Muhammad

Trade finance

Trade finance facilitates transactions between buyers and sellers in international trade. Financial institutions participate in trade finance deals by acting as an intermediary between the importer and the exporter.

Usury

Usury is originally the practice of charging interest; sometimes understood as charging excessive or illegal interest rates

Vesting

Vesting refers to what percentage an employee has earned of his employer contributions. An employee is always 100% vested in his own salary deferral contributions. However, depending on the plan documents, a vesting schedule describes when and how much an employee is entitled to of his employer contributions. Employees are always 100% vested in their employer contributions in a safe harbor 401(k) plan.

Zakah

Zakah is the annual financial obligation every Muslim must pay on surplus wealth above a certain amount (nisab) considering their holding period of time (hawl).