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