What to look out for when researching stocks

Many money moves we make require doing our homework beforehand.

When saving up for a big purchase, research tells us it's important to know the difference between a traditional savings account versus a high-yield savings account. (Hint: the latter grows your money faster.)

Or, when signing up for a new travel credit card, we're naturally inclined to first shop around for the cards offering the best welcome bonus.

And when it comes to investing our money in the market, doing our research is just as crucial. You don't have to be an expert to start buying stocks, but the more you know going in, the better off your investing journey will be.

Here's what to keep in mind when researching stocks.

People ultimately buy stocks with one end-goal in mind: to build wealth. But it's important to note here that wealth is not guaranteed. Investing in individual stocks carries much more risk than, say, buying bonds or putting your money in index funds.

As you begin to research stocks, first know how much risk you can take on, or your risk tolerance. Are you able to comfortably stomach large financial losses? Financial experts typically recommend that you only invest money in individual stocks that you can afford to lose and, since investment returns are typically maximized over the long haul, only invest money that you won't need in the short term.

So the money you want to use for a down payment on a house in the next year or so, or for your kid's college education in the next 15, is best put in different types of accounts — think a high-yield savings and 529 account, respectively.

Warren Buffett once said, "Never invest in a business you cannot understand."

This may seem obvious, but it's worth reminding yourself that you should understand what the company does, or the products it makes, before buying into it. After all, as an investor, owning its stock means owning a portion of that company.

Before betting your money on a software company specializing in data security and analytics, for example, make sure you understand how the cybersecurity world works.

Understanding the company's product is one thing, but understanding its finances paints a bigger picture that an investor needs to see. A company can be innovative, but does it make money that will, in turn, make you money? Take tech companies as an example. You may understand and like the product (and even use it yourself), but how do they monetize their huge platform of users?

To dive into a company's financials, look up its annual reports. Publicly-traded companies offer annual reports for free to the public so that current and future stockholders can view the company's performance and see what it has been up to.

You can usually find a company's annual report on its website, under an "investor relations" tab. Googling the company's name and "investor relations" is also a shortcut that will bring you to the right spot. On this webpage, you can also find information on the company's quarterly earnings calls, which anyone can tune into, as well as access analyst coverage of the company.

A company's historical performance isn't a sole reason to buy (or not buy) its stock, but it can help lend some insight into what you can expect.

Websites Google Finance and Yahoo! Finance allow investors to research historical data, such as price charts that go back several decades. Users can also compare stocks' historical data with one another.

Note that past performance does not guarantee future success — just because a company has performed well in the past does not mean that it will continue to do so in the future.

Before you jump into the complicated and risky world of stock investing, take the time to just get your feet wet by doing research beforehand.

Start by understanding your risk tolerance, and then move onto understanding what the publicly traded companies do, what products they offer, how they make money and how they've performed in the past. Experts generally suggest that individual stock picks make up only about 5% to 10% of your overall investment portfolio, with the remaining put in less risky investments.

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