Successful Investing Starts With Saving

Putting that money into an investment account as quickly as possible is a key step. It's the start of the kind of positive feedback loop you need to build if you're to become a successful saver in a culture that loudly and incessantly blares, "Spend! Spend!"

My method has a built-in positive reinforcement mechanism: By setting up a dedicated investment vehicle, I can watch the savings increase every pay period. That activity, in turn, transmits a positive message back to the saving-pleasure center in my brain that keeps the stream of savings going.

Mind the Costs

There is a hitch. I haven't found the ideal cost-effective vehicle to execute the strategy. The trade-off is between paying too much in transaction fees and needing too much money to open an account.

So, for example, most stocks and ETFs cost too much in commissions if you buy them through a traditional or even an electronic broker. You certainly don't want to be buying $74 worth of stock each month, even if the commission is just $8 a trade. That's almost 11%.

You can use a service like ShareBuilder.com to buy shares cheaply even if the company doesn't have a direct purchase option. ShareBuilder charges just $4 per transaction (and remember, you can set these up so they're automatic). But that's still 5% on a $74 savings investment.

ShareBuilder has expanded its services to include low-cost purchases of exchange-traded funds (ETFs). It still costs $4, or 5% on my $74 monthly purchase, but it does give far more diversification than you'd get by buying a single stock. Two ETFs that look good for a savings-investment strategy are the Vanguard Extended Market Index Viper (VXF Quote), which tracks the entire market, and the Standard & Poor's MidCap 400 SPDR (MDY Quote), which tracks the Standard & Poor's MidCap 400.