My Religion Won't Let Me Invest In The S&P 500

Summary

Ramsey Everyday Millionaires: "My Religion Won't Let Me Invest In The S&P 500"

Release Date: April 7, 2025
Hosts: Dave Ramsey, George Kamel, and Special Guest Jeff

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Introduction

In this compelling episode of Ramsey Everyday Millionaires, the Ramsey Network delves into the intricate balance between religious beliefs and investment strategies. Hosted by Dave Ramsey and George Kamel, the episode features Jeff, a Muslim investor grappling with the dilemma of aligning his financial growth with his religious principles.

Jeff’s Dilemma: Religious Constraints on Investing

Jeff initiates the conversation by presenting a unique challenge: he cannot invest in the S&P 500 or similar ETFs due to religious restrictions against companies involved in alcohol, gambling, and adult entertainment. This situation forces him to contemplate creating a personalized, diversified portfolio that aligns with his faith.

Jeff (00:22): "I have a question that I don't think has been asked before. I can't invest in The S&P 500 and other similar ETFs because of religious reasons."

Exploring Alternative Investment Options

Dave Ramsey expresses understanding and seeks clarity on Jeff's specific religious constraints to offer tailored advice.

Dave Ramsey (00:55): "What is the religious reason that you cannot invest in the S&P 500?"

Jeff elaborates, explaining that his Muslim faith prohibits him from investing in companies associated with activities deemed unethical.

Jeff (01:03): "So the reason is I'm Muslim and I'm not allowed to invest in any companies that involve alcohol, gambling. So adult entertainment, all those."

Current Investment Strategies and Challenges

Jeff outlines his current approach, which involves selecting an ETF that excludes prohibited companies. However, he faces a significant hurdle: the high expense ratios of these specialized ETFs make them less attractive compared to the standard S&P 500 funds.

Jeff (01:28): "But the problem with that is the expense ratio is so much more higher than it would be for investing in the S&P 500."

George Kamel probes further into Jeff's investment framework, questioning whether his current investments are within retirement accounts or personal accounts.

George Kamel (01:36): "Is this in a retirement account?"

Jeff confirms that his investments are personal, although he is also contributing to his employer's 401(k).

Maximizing Tax-Advantaged Accounts

George emphasizes the importance of leveraging tax-advantaged accounts like 401(k)s and Roth IRAs before venturing into taxable brokerage accounts.

George Kamel (02:02): "I would encourage you to use those tax-advantaged accounts first."

Jeff reveals his income bracket and participation in his company's retirement plan, prompting George to suggest prioritizing these accounts even with their inherent limitations regarding ethical investments.

Jeff (02:28): "So I make about 80k before bonus."

The Compromise: Halal-Compliant Funds

Exploring alternatives, George introduces the concept of halal-compliant funds, which adhere to Islamic investment principles. However, this brings forth the issue of significantly higher expense ratios, often starting at 2.0% to 2.5%, compared to the sub-1% rates of mainstream ETFs.

George Kamel (03:47): "Have you looked into those? Do they all have high expense ratios?"

Jeff (03:57): "Yes, they start at like 2.5 or 2.0. It's really high."

George candidly discusses the necessity of making a compromise between religious adherence and investment efficiency. He suggests that Jeff might have to accept higher costs to remain true to his values.

George Kamel (03:57): "There's going to have to be a compromise here. If this is part of your beliefs and this is something you feel really strongly about, you're just going to have to pay that expense ratio for the pleasure of following your values."

Creating a Personalized Diversified Portfolio

Jeff contemplates an active investment strategy where he constructs his own diversified portfolio by selectively including companies that align with his religious beliefs. This approach, however, poses challenges related to complexity and maintenance.

Jeff (04:11): "Do you think if I decided pretty much to actively create my own portfolio that operates as a passive ETF kind of thing."

George Kamel (04:35): "That's going to get real complicated real fast."

George warns against this method's potential pitfalls, emphasizing that selecting a limited number of stocks can significantly increase portfolio risk compared to broad diversification.

George Kamel (04:38): "The less companies you have, the less diversified you are, which adds a lot of risk."

Final Advice: Embracing Sacrifice for Conviction

As the discussion progresses, Dave Ramsey underscores the concept that living by one's religious convictions often requires sacrifices, including financial compromises. He suggests that adhering strictly to religious investment principles may inherently involve higher costs.

Dave Ramsey (06:12): "Here's the deal [...] it's basically a tax you're paying."

George concurs, reinforcing that investing in halal-compliant funds entails accepting higher expense ratios as a necessary sacrifice to honor religious beliefs.

George Kamel (06:21): "You know, the normal expense ratio is under one percent. You're paying two and a half."

Dave concludes by affirming that Jeff must choose whether to fully commit to his ethical investment strategy, accepting the associated financial burdens as part of his commitment to his faith.

Dave Ramsey (07:30): "And so that's just my take, Jeff [...] I don't think there's a midway there."

Conclusion

This episode of Ramsey Everyday Millionaires poignantly highlights the intersection of personal faith and financial strategy. Jeff's journey underscores the complexities faced by investors striving to align their portfolios with deeply held ethical and religious values. Through thoughtful dialogue, Dave Ramsey and George Kamel provide nuanced perspectives, ultimately emphasizing that maintaining religious integrity in investments may necessitate accepting higher costs and reduced diversification. Listeners are encouraged to weigh their values against investment efficiency and to seek financial strategies that honor both their beliefs and their financial aspirations.

Notable Quotes

• Jeff (00:22): "I can't invest in The S&P 500 and other similar ETFs because of religious reasons."
• Dave Ramsey (00:55): "What is the religious reason that you cannot invest in the S&P 500?"
• George Kamel (03:57): "There’s going to have to be a compromise here."
• Dave Ramsey (06:12): "It's basically a tax you're paying."
• Dave Ramsey (07:30): "I don't think there's a midway there."

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This episode serves as an insightful resource for individuals navigating the delicate balance between ethical convictions and investment growth, illustrating that financial decisions are often deeply personal and multifaceted.

Transcript

[Dave Ramsey]

Foreign.

[George Kamel]

This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor all right, Jeff is.

[Dave Ramsey]

Up in Atlanta, Georgia. Jeff, how can we help today?

[Jeff]

Hello. So my question is, first of all, thanks for having me on the show.

[Dave Ramsey]

You bet.

[Jeff]

I have a question that I don't think has been asked before. But. So I want to. I can't invest in The S&P 500 and other similar ETFs because of religion reasons. So should I create my own diversified portfolio?

[Dave Ramsey]

Okay, I have questions. Okay. What is the. And I don't want to. I want to be very sensitive in how I ask this question. What is the spiritual or religious? Actually, it's not spiritual. I'm going to call it. What is the religious reason that you cannot invest in the S P500?

[Jeff]

So the reason is I'm Muslim and I'm not allowed to invest in any companies that involve alcohol, gambling.

[Dave Ramsey]

Okay.

[Jeff]

Adult entertainment, all those.

[Dave Ramsey]

Totally caught up now. Okay. Because I'd not heard that before, but that makes. I get it. So tell us what you're thinking. I want George to be able to hear this. What would be your diversified stock strategy?

[Jeff]

So first I found another ETF that pretty much it's like pulls from the S&P 500 but excludes the company that do the gambling and alcohol and all that stuff.

[Dave Ramsey]

Okay.

[Jeff]

But the problem with that is the expense ratio is so much more higher than it would be for investing in the S&P 500.

[George Kamel]

Is this in a retirement account?

[Jeff]

No, this is personal.

[George Kamel]

Are you investing in retirement?

[Jeff]

Currently, yes, but through work like 401k and stuff like that.

[George Kamel]

Okay, so those funds likely have companies that are against your beliefs, correct?

[Jeff]

Yes.

[George Kamel]

But you're just. It's the options that you have.

[Jeff]

Yes.

[George Kamel]

And are you investing 15% into that? Those retirement accounts?

[Jeff]

I believe it's 6.6% match and I'm doing 100% of whatever 6% is.

[George Kamel]

Okay. I would encourage you to use those tax advantaged accounts first. It sounds like you don't need to be investing beyond retirement right now. Unless that 15% gets you maxing out every tax advantage account where you need to go to these non retirement taxable brokerage accounts. Is that the case?

[Jeff]

I don't, I don't understand what you mean by that.

[George Kamel]

So what is your income?

[Jeff]

So I make about 80k before bonus.

[George Kamel]

Okay. And you have a company 401k?

[Jeff]

Yes.

[George Kamel]

Is there a Roth version of that that they offer?

[Jeff]

Yes, I put in, I contributed one Time, but then I stopped. I really wanted to take advantage of like tax reduction.

[George Kamel]

Okay, well, the thing is with the Roth account, you're just using after tax money, you don't get the deduction, but then it's going to grow tax free and you'll withdraw it tax free in retirement and especially with your income. I would recommend you go with the Roth option. It's not worth it for the tax deduction when you see the growth and the tax free withdrawals later on. So in that regard, here's my question to you. Why is it okay to invest in the 401k in these funds but not outside of the 401k? What's the difference?

[Jeff]

Well, really the 401k is something that I was contributing to already unknowingly, and I just realized how much I had in it. Right. I still haven't made a decision whether I want to stop contributing and like go full on the other direction. But right now I know since it's like my only option at work and it was already automatically being contributed. Right. That's not something that would be hold against me religiously.

[George Kamel]

Yeah, but I have looked into this. There are halal investing funds that are compliant.

[Jeff]

Yeah.

[George Kamel]

Have you looked into those? Do they all have expense high expense ratios?

[Jeff]

Yes, they start at like 2.5 or 2.0. It's really high.

[George Kamel]

Man, that is brutal. Well, here's the, here's the deal. There's going to have to be a compromise here. If this is part of your beliefs and this is something you feel really strongly about, you're just going to have to pay that expense ratio for the pleasure of, you know, following your values.

[Jeff]

Well, do you think if I decided pretty much to actively. So I create like my own portfolio that operates as a passive ETF kind of thing. Right. I only pull from the companies that I do align with, from the S&P 500, NASDAQ and all that.

[George Kamel]

I mean, you're talking about investing in 400 something different companies likely.

[Jeff]

Well, I would.

[George Kamel]

That's going to get real complicated real fast.

[Jeff]

I would only pick enough to have my portfolio diversified. I wouldn't go all the way into like presenting those 1% companies and stuff like that. I would worry about the top 10 and then the ones that come underneath. But like when it gets to like that, that company, that's like 0.5% of the S&P 500. I won't worry too much about it.

[George Kamel]

I mean, you can do that. I still think the tax advantage of these retirement accounts outweighs all of this to where I would just choose the best options you have in the 401k and it's, it's the options you have, you have no control over that. And I would stick to those retirement accounts for the foreseeable future until you get to the point where you're maxing out your retirement accounts or you paid off your house and you want to increase your investing. But I wouldn't just mess with a taxable brokerage account and picking single stocks. I just wouldn't personally do it.

[Jeff]

Even, even if I'm picking the stocks not based on what I believe are best good investments, but based on what the s and P500 is picking, I'm.

[George Kamel]

Telling you can do that. It's going to be a really complicated portfolio and get messy real quick when you're trying to auto invest in 400 different. Whatever the top companies are. And the less companies you have, the less diversified you are, which adds a lot of risk. So if you said, hey man, I'm going to go in Tesla because it's compliant. Have you seen Tesla lately? This is why you want to be diversified amongst hundreds and hundreds of companies. And so I don't know, I don't. I would talk to other folks who are in the same boat as you that are part of your faith community and find out what the options are and then just choose the best that you can. That's all you can do. And I, I hope that.

[Dave Ramsey]

Or you got to pay the additional.

[George Kamel]

Or pay the extra. You know, the normal expense ratio is under one percent. You're paying two and a half. Look, it's a, you know, it's basically a tax you're paying.

[Dave Ramsey]

Yeah.

[George Kamel]

To follow your religious beliefs.

[Dave Ramsey]

Jeff, I've been listening in here. George, I think has given you terrific advice here. And you keep pushing back. You keep, you know, and it's like, look, if you want to take that on, George, think that that's a lot. And I would assume because it's so much, it also has a lot of risk involved with it. That's what I'm hearing from you. So my pushback on this to you, Jeff, is you can't have your cake and eat it too is an old phrase and I think it applies here. You know, I really respect anybody that lives their life on a set of religious beliefs. And what that really is, is about conviction. But in order to live a life of conviction, there will have to be sacrifice. There is no, I don't care what religion it is. You could take the entire world's religion, and all of it requires sacrifice to follow it. So you're already violating your religious beliefs and your 401k. Those are your words, not ours. So I, as I listen to this, listen to George, I mean, I think I would take those other funds. What'd you call it? The.

[George Kamel]

Oh, the Halal compliant funds.

[Dave Ramsey]

I think that's the sacrifice you have to make.

[George Kamel]

And they're going to be more expensive because they're actively managed.

[Dave Ramsey]

But that's the sacrifice.

[George Kamel]

Exactly.

[Dave Ramsey]

And so that's just my take, Jeff, because I'm actually honoring what you're saying, and I think you got to follow that fully or not at all. I don't think there's a midway there.