Saving your money is one of the best methods to build wealth, especially if you do it wisely. But the beginning isn’t easy and novices often make costly mistakes. Here are some suggestions to avoid costly mistakes in the stock market.

1. Understand the basics of investing.

The stock exchange is where securities such as stocks, government or corporate bond, and exchange-traded funds are traded. Essentially, it’s an auction where a publicly traded company sells shares to investors in exchange for capital. Investors purchase or sell shares based on their belief that the company value will rise or fall. The price of a share is determined by numerous factors, including the state of the economy, environmental disasters or war, and more.

2. Stick to long-term investment goals.

Most financial experts recommend that you invest in the market for a long time – at least five years or more. This allows you to build your portfolio and to withstand the inevitable losses that come with volatile markets. However, many investors are lured by short-term gains or lose focus during the inevitable declines in the market and sell off their investments too quickly.

3. Diversify your portfolio.

The more diversified your portfolio is, the safer it is. This includes diversifying by particular asset class, industry and geographical region. It’s also important not to risk investing too much funds into a single company. This is known as “concentration risk” and it can cause harm if the company runs into difficulties, such as regulatory issues or a public relations issue.

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