Recently one of my close friends visited ‘Kedarnath’. Surprisingly, he was alone and completed the full trek on his own. After this successful yatra, we had a long discussion about his overall experience. Of course, as a core finance person, I would like to throw some light on ultimate life lessons that one can learn from his experience and which are relevant in personal finance as well.
Success doesn’t happen overnight:
(Wealth cannot be created in short-term)
My friend completed the Kedarnath trek by walking. That day he walked for around 40 km What do you think, does it require only practice? No.
You need 4 P’s to achieve success in any area, be it Life, Career, or Personal Finance
- Planning: Plan to be ready in all circumstances
In the financial context, you should plan for your Financial Goals. Assess your risk-taking capacity and decide on asset allocation accordingly. Think about the time frame of your financial goals. This is called planning.
- Practice: Practice to make it happen (Break the target into small segments)
Start small, but maintain consistency in investing. Have a long-term vision. Wealth (Large corpus) cannot be created in the short term.
- Patience: Patience when a desirable outcome is a long way off
Compounding takes time and ‘time’ is that factor that distinguishes typical savings, investment, and wealth. Have patience when markets are down. You can do it if you have planned it mindfully.
- Persistence: Persistence when things go wrong
You should have the ability to stick to your plan. Make changes and reallocate your investment portfolio, if necessary. Everything is not going to work in your favor. You will have to book losses sometimes. But stick to the basics. Understanding risk, returns, and your financial position is key to making the right choices.
Choosing the right way to reach your destination is crucial
(Choosing the right Investment option is important)
There are many options to reach Kedarnath Temple such as Palki, Kandi, Pony/Horse, Helicopter, and a walk. However, which is best for you? Well…it depends on your ability and health condition.
Every route has its own pros and cons. The Helicopter way is the fastest but most expensive and uncertain. Walking is extremely difficult, but free and adventurous. Pony/Horse is less expensive than Helicopter, but it can be scary and even physically painful.
Similarly, there are different investment options, and asset classes are available, to accumulate a corpus. In personal finance, the decisions are to be made on the basis of your priorities. The higher the investment tenure, the higher can be the exposure toward Equity. The probability of returns is higher in Equity, as is the risk. On the other hand, choose the Debt route if you are conservative and cannot digest so many ups and downs in the market.
You should do what suits you best. Take expert advice, if you are not sure. It’s better to take professional help than to spoil your journey.
Overconfidence can break you
(Never try to time the market and never try to take a risk out of greed)
Nature can ruin your plan in a second. Climate conditions in Kedarnath are very unpredictable. So, it is better to be ready for all situations.
Some investors make profits in their initial journey of investing. Remember the boom period between April 2020 to March 2021. Sensex moved up by almost 80% in that one year. However, after that period, the market is moving in a particular range (sideways).
Many investors who booked profits in the boom period, thinking that they are experts, invested money in the F&O segment (Futures & Option) & short-term share trading. And as they were overconfident, they started investing without proper study.
Mr. Nikhil Kamat (Founder & CEO of Zerodha) tweeted in January 2022, thatjust 1% of active traders make more than bank fixed deposits over 3 years’ time-frame.
Don’t make decisions on the basis of greed. Be smart and invest as per your financial goals. Accumulating the required corpus on time is more important than just running after returns. Markets or unexpected events (such as COVID-19) can shock you anytime.
Believe will help you continue your journey. One failure cannot stop you.
(Financial losses cannot pull you back)
All must have heard about the unfortunate incident that happened in Uttarakhand in June 2013. Heavy rain and a cloudburst on the glacier lake caused the flash flood. Flash floods hit the Kedarnath Valley, killing thousands of people.
Did people stop visiting Kedarnath temple? No. In the year 2023, many lakh people have already visited the temple.
In the financial context, the financial crisis in 2008 was massive. By the end of the Year 2008, the Sensex had dropped from around 20,465 points to 9716 points (50% drop). The Sensex recovered from this bottom and crossed the 20,000 mark again in September 2010. So, it took 2 years to recover.
Did people stop investing? No… Investors who invested in 2008, sustained and continued to invest, they made a lot of money. And who left the stock market, missed a huge rally in coming years. Losses are part and parcel of the investment journey. Don’t let these losses deter you from investing entirely. Rather pay attention to developing a strategy to curtail losses and diversify your investment & risks.
Always respect emergencies and prioritize them.
(Create an Emergency Fund & protect yourself through Insurance)
In spite of extreme weather conditions & level of difficulty of the trek, various facilities are made available to deal with emergency situations. These are small tents to stay overnight, and basic medical facilities (First-aid). Tourists are also advised to take utmost care and do a medical check-up before going.
Likewise, there could be many financial emergencies such as medical emergencies, loss of pay, and loss of job. In the case of business, there can be a delay in payment to be received or urgent payment to be made, etc. In these situations, do not think of returns or penalties for withdrawing money before maturity.
Respect the emergencies. You can curtail it by protecting yourself through Health Insurance & Life Insurance (Term Plan). Further, investing for different time frames and creating an emergency fund will protect you from any abrupt withdrawal of money.
Summary:
I hope you enjoyed this blog. If you implement these lessons, it will impact your life and personal finance positively.
Very well written. Perfect analogy.
Well explained