My "Drive Free Cars" Fund Update!

I made a partial car payment to my Car-Fund for August in the amount of $ 240.00.
The total value of my Car-Fund is now $ 1,048.36.  I doubt that I have many options for a reliable vehicle for around $1k.  May be a motorcycle.   I posted some vehicle options in this range below.

After reading the descriptions of these cars, most are mechanic-specials.   It appears the stock market is falling (see the S&P figure below), so that means I can grab some good on-sale ETFs this week.  

The below table is a snapshot of the ETFs I am currently invested in. Some pay dividends, which I might set up to a do a dividend reinvest option.

Symbol	Current Value	Quantity
IDV ISHARES INTERNATIONAL DIVIDEND ETF	$58.80	2
IJR ISHARES CORE S&P SMALL-CAP ETF	$111.22	1
IJT ISHARES S&P SMALLCAP GROWTH ETF	$250.70	2
ILF ISHARES LATIN AMERICA 40 ETF	$71.73	3
ONEQ FIDELITY NASDAQ COMPOSITE INDEX TRACKING STOCK	$185.63	1
PFF ISHARES US PREFERRED STOCK ETF	$117.03	3
PICK ISHARES MSCI GLOBAL METALS & MINING PRODUCERS ETF	$10.55	1
Total Invested in Funds	$805.66

An interesting article at Dave Ramsey site discusses what cars the wealthy drive.  Would a millionaire choose a Ferrari or Ford?

Also, I think the S&P 500 might be on-sale. 

Average Joe's 15 Years on the “Drive Free Cars” Plan

A Story about Average Joe's car decisions.

In Dec. 1999, average Joe went to the local car dealer and test-drove several cars.  Joe was very impressed with the ‘new’ Chrysler Town & Country.  The dealer offered to finance the new Town & Country, priced at $30k, for ONLY $456 per month for the next 6 years. 

However, Joe decided not to follow the recent hype of leasing/financing a car and, instead, bought a ‘used’ 1996 Chrysler Town & Country with 35k miles for $16K in cash.  

Joe decided that he would replace this Town & Country vehicle in about 5-6 years when the odometer hit 100k miles.  So he began to invest $500 per month, or $6,000 per year, into a mutual fund -VFIAX.  

How did it work out for Joe?

Well the market was falling in 2001 – 2002, but Joe looked at this depressed market as ‘On-Sale’.  The Market rebounded, and after 5 years, Joe was ready to sell the Town & Country and replace it with something ‘newer.’  Joe opened his ‘drive-free cars’ fund's statement to find a balance of $37K (he had invested $30k and his money had earned $7k in interest.)  See Table Below.

Year & Fund Performance End of the Year 2001 | -11.98 $5400 2002 | -22.10 $10000 2003 |  28.59 $20400 2004 |  10.82 $29150 2005 |  04.87 $36806

Joe decided not to kill his golden goose (the principle), and took out only the interest earned on the principal.  After selling his Town & Country for $11k, he set out with $18k to buy a used 2002 Lincoln LS.  After purchasing the LS, Joe had $30k remaining in the ‘drive-free cars’ fund.

Joe continued to contribute $500 per month to this account, and then planned to upgrade from the LS in five years.

After 5 years of driving the LS, Joe again decided to look at his ‘drive-free cars’ fund.  He opened the account to find $67k in the fund (he had invested $60k and his money had earned $8k in interest.)  See Table Below.

Year & Fund Performance End of the Year 2006 |  15.75 $41714 2007 |  05.47 $50550 2008  | -36.97 $35000 2009  |  26.62 $52665 2010  |  15.05 $68000

 Joe again decided not to kill his golden goose, and took out only the interest earned on the principal.  After selling his Lincoln LS for $14k, he set out with his $22k to buy a used 2007 BMW 525i.  After purchasing the BMW, Joe’s ‘drive-free cars’ fund had $60k remaining in 2011.  Joe continued to contribute $500 per month to this account.

After 5 years of driving the BMW, Joe again decided to look at his ‘drive-free cars’ fund.  He opened to find $174k in the fund (he had invested $90k and his money had earned $84k in interest.)  See Table Below.

Year & Fund Performance End of the Year 2011 |  02.08 $67276 2012 |  15.96 $85412 2013 |  32.33 $125600 2014 |  13.64 $149376 2015 | ~11% $173730

  
Joe again decided not to kill his golden goose, and took out only the interest earned on the principal.  After selling his BMW for $18k, he set out with his $102k to buy a used 2012 Aston Martin DB9 Volante. 

Sources and other reading

·         http://finance.yahoo.com/q/pm?s=vfiax

·         http://www.bogleheads.org/wiki/Dollar_cost_averaging

My "Drive Free Cars" Fund Update!

Invested a partial car payment for August - $ 240.00
Total Value of Fund - $ 846.72

I think the main thesis of the video is the investing part, take the normal car payment the average person pays, but instead of paying the finance company pay yourself the same payment in a mutual fund that gives you a return. Then, once the fund reaches 20K use only the return to buy your future car for 14k - 18k every five years, assuming market average return of 12 %.


Some Comments Others have made - "Can't Sell a Used Car for what you paid for it"

Regarding the used car, I think Dave also has a point – a cheap car loses VERY little in value compared to a newer car.  I have been fortunate to make more than what I have paid in at least three cars –

• 2001 Sebring - paid $3,500 in 2004 got 6,000 in 2009: it was stolen & totaled
• 2006 RX-8 - paid $12K in 2009 got $14k in 2011: the market for used car in 2010 was bad and the prices were low, and I got KBB for it when I got rid of it.
• 1996 Town & Country Mini-Van - paid $200 in 2008 and sold it for $1k in 2015 - drove it for many happy years!

However, this is likely atypical. I believe on average that a car owner cannot get back 100% for what he/she paid. But, I believe the depreciation is so little, e.g. a few hundred dollars for a used car.  So, Dave was correct, so call it approximately zero.

If you have a problem with the numbers, you can always change the math, say you paid $6K for a used car, you could likely sell it for $5K in one year.

The cool thing about the video is using the law of compound interest to pay for cars – that is the drive free part.  Hopefully, I can document that in my little unheard of blog – to see how well I do.

Motivating videos -