How do I find out who owns my mortgage?

Can I invest in the stock market without the aid of a stockbroker?
— Steve S., New Mexico

Yes, you can. You’ll still need to open a brokerage account, but you can decide which stocks you want to buy and sell. (Technically, you can buy and sell stocks with anyone you want, but you'll get a better price trading in the market the rest of the world of investors use. And some companies will let you buy their stock directly from them, but you'll have to open an account with each company.)

You can also invest in the stock market without trying to figure out which stocks to buy. There are several ways to do this: the most common is to buy a mutual fund. These investments pool money from many investors — often smaller investors who may have just a few hundred dollars to play with. The investment manager running the fund then uses the money to buy a longer list of stocks than you could with just a few hundred dollars.

Investing in lots of stocks at once is a hugely important hurdle for people who are just getting started. It’s the simple, age-old problem of not putting all your eggs in one basket. Not all stocks go up and down at the same time; it’s been proven that if you hold a bunch of stocks that don’t march to the same drummer, you can increase you overall return with less risk than if you try to just pick a few winners.

Mutual funds still carry the risk that the investment manager won’t pick the right stocks either. For every fund that beats the market average, there’s another one that fell short by the same amount. (By definition, only half of the funds can offer returns that are “above average.”) If you subtract the fees that mutual funds charge to pay the investment manager and other expenses, the average return of all funds is going to be less than the overall return of the market you’re investing in.

That’s why some investors like to just buy an “index” fund – which just buys all of the stocks in, say, the Standard and Poor’s 500 index. In effect, you’re buying the entire stock market – and getting maximum diversification — one investment dollar at a time. You’ll pay a much smaller fee, because the fund doesn’t have to spend the money on research and investment advisors — it just duplicates the index you’re investing in.

There are now so man index funds out there you can diversify your investment in another important way. Just as individual stocks march to different drummer, so do different types of stocks. Most index fund investors like to spread their chips around the table — buying indexes that track small stocks, big stocks, foreign stocks, etc. One of the earliest proponents of index funds was John Bogle, the founder of The Vanguard Group of mutual funds. Today you can buy them through dozens fund companies and online brokerages.

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