Track your progress to financial independence in the FI Laboratory!

Guinea Pig – Update #3

Welcome to the third update for the Guinea Pig (GP) experiment. The GP experiment allows us to follow the entire journey of someone going from $0 net worth to financial independence, using real-time market returns. To check out past articles in this series, visit the Archives page and scroll to the Guinea Pig section.

So, it seems the market has continued its march upwards since our last update. The GP is making great progress and is no doubt feeling pretty happy about his decision to pursue FI.

Let’s take a look at the FI Laboratory graphs for both the normal and the optimized GP scenarios (if you haven’t started tracking your own progress yet, use Personal Capital to automatically calculate your net worth and then plug your numbers into the FI Laboratory to see if you can keep up with the Guinea Pig).

The Numbers

Normal Scenario

Normal GP - Update #3

Here are what the normal scenario contributions looked like last month:

Income: $6,000
FICA Taxes: $459
Federal Income Taxes: $943
Spending: $2,200
Taxable Investments: $2,398

Total Invested: $2,398

Optimized Scenario

Optimized GP - Update #3

Rather than plow money into taxable accounts like the Normal GP, the Optimized GP has instead continued front-loading his 401(k). He’s nearly reached the contribution limit on his 401(k) so he’ll soon be shifting his contributions to his IRA. Here are what his contributions looked like last month:

Income: $6,000
FICA Taxes: $459
Federal Income Taxes: $276
Spending: $2,200
401(k): $3,065
Employer 401(k) Match: $180

Total Invested: $3,245

The Investments

In both scenarios, all money gets invested in VTI, which is Vanguard’s ETF version of their Total Stock Market Index Fund (note: only whole shares can be purchased through Vanguard so there may be some cash left over after each month).

On May 30th, 2014 (The GP’s payday for May), VTI closed at $99.62. Here’s how the GP portfolios look after the fifth month:

Normal Scenario

Taxable VTI – $12,253
Taxable Cash – $81

Total Portfolio Value – $12,334

Optimized Scenario

HSA VTI – $3,487
HSA Cash – $59
401(k) VTI – $13,449
401(k) Cash – $23

Total Portfolio Value – $17,018

Remarks

Well, not much excitement in May but the Optimized GP is making great progress and has saved nearly eight months’ worth of expenses in just five months.

Even though the GP hasn’t made any big mistakes yet, head over to 1500days.com to read about some of the financial mistakes I’ve made over the years: 10 Questions with the Mad Fientist.

How have you done? Have you kept pace with the Guinea Pig this month?


Image: aaddaamn

18 comments for “Guinea Pig – Update #3

  1. June 20, 2014 at 9:28 am

    Thanks for the link!

    You mention the Vanguard ETF and I have a question for you about this. I was recently looking at a Vanguard Information Technology mutual fund (it has since seemed to disappear from their site). I wanted to put some money into it, but it had a 100K minimum. 100K was a bit steep, so the Vanguard advisor suggested I buy the ETF instead (https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/productoverview?fundId=0958&WT.mc_id=2012FASSearch). The holdings and expense ratios of the ETF mirrored the mutual fund.

    I understand that an ETF trades like a stock (constant price fluctuation) as opposed to a traditional mutual fund which adjusts once per day. Is that really the only difference? Are there any other drawbacks to choosing an ETF over a fund? I asked the Vanguard adviser and she was clueless.

    • June 20, 2014 at 10:16 am

      ETFs usually have lower fees compared to a mutual fund. They are usually a better choice.

    • Enimgaa
      June 20, 2014 at 11:44 am

      Mr.1500, there are some differences.

      Here is a link to some info from Vangard:

      https://investor.vanguard.com/etf/etf-vs-mutual-fund

      Also i think there is a few comments in moneymustache fourms. I was looking for info on whether to go to VTI or VTSMX:

      http://forum.mrmoneymustache.com/investor-alley/vti-vs-vtsmx/

    • The Mad Fientist
      June 20, 2014 at 1:18 pm

      Thanks for letting me take part in your 10-Questions series!

      It looks like some others beat me to your question but I think the two biggest downsides of going with the ETFs over the funds is that you can’t set up an automated investment plan and you can’t purchase fractional shares. These are both relatively minor though and are balanced out by some of the benefits so it sounds like the ETF route is the way to go for what you’re trying to accomplish.

      Thanks to Michael, Enimgaa, and Mr. Frugalwoods for chiming in

      • June 20, 2014 at 3:21 pm

        Thank you all for the responses. Much appreciated!

  2. June 20, 2014 at 11:02 am

    As with most things investment related, I look to the bogleheads wiki to explain things:

    http://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

    I’ve always understood the modern ETF index fund is superior in almost all ways to a mutual index fund. Looks like the Bogleheads mostly agree.

    With some brokers there is still a trading fee for ETFs that isn’t applied with mutual funds… but I think most are getting away from that practice. Certainly not a problem at Vanguard.

  3. June 20, 2014 at 12:04 pm

    Do you know what fees Vanguard charges for a personal Roth IRA account?

    • June 20, 2014 at 12:29 pm

      Hey Free,
      There is a $20 Annual Account Service Fee for accounts with balances less than $10,000, however that fee is waived if you sign up to have your paperwork sent to you electronically.

      Other than that, your fees are incurred within whatever mutual fund(s) you invest in.
      -BGM-

    • The Mad Fientist
      June 20, 2014 at 1:21 pm

      The Big Guy is exactly right. Just elect to have your paperwork sent electronically and then all you have to worry about is the fund fees.

  4. June 20, 2014 at 3:41 pm

    The GP experiment is awesome. I am interested to see if the Normal guinea pig catches up a little when the favorable accounts are maxed out. This is certainly more exciting than my junk food experiment.

    • The Mad Fientist
      June 22, 2014 at 8:56 am

      I suspect the Normal GP will catch up a bit at the end of the year but the Optimized GP has a great head start so it will be fun to watch those extra gains compound over the years.

      I just noticed on your blog that you got to enjoy some Westvleteren recently. I’m very jealous! I’ve been to Belgium quite a few times but I still haven’t made it out there yet.

      How is it living in Brussels? I’d love to spend an extended period of time there one day so hopefully we can make it happen.

      • June 23, 2014 at 3:09 am

        We actually head home on Thursday for good but we have really enjoyed it. Having lived and grown up in the Midwest it was very different living in a large city with a subway and all that. The language barrier also made it hard but it has been all worth it. Good beer, good food and fairly nice people.

  5. Chris
    June 22, 2014 at 9:20 am

    If this is supposed to be realistic, where is the emergency fund?

    • The Mad Fientist
      June 22, 2014 at 9:36 am

      Who says everyone needs an emergency fund?

      The GP is saving nearly 1.5x his monthly expenses every month so if something goes wrong one month, he can simply use a credit card to pay for the expense and then instead of contributing to his 401(k) the next month, he can pay off the expense before he’s charged any interest.

      An emergency fund is great for people living paycheck to paycheck but when you save a large percentage of your income, an emergency fund usually isn’t as important.

  6. Marvin McDude
    June 27, 2014 at 7:48 pm

    It’s pretty nuts how different the net savings rates are between the 2 scenarios… I’m loving this series and interested to see what the numbers look like after 12 months :)

    This is also a huge kick in the butt that I need to contribute to an HSA next year! :)

    • The Mad Fientist
      June 30, 2014 at 9:52 pm

      Really glad you’re enjoying the series, Marvin. I too look forward to seeing how big of a gap there is between the two scenarios at the 1-year mark.

  7. Paul
    July 4, 2014 at 9:25 pm

    One thing to watch out for that might have been mentioned before: my company does the match on a paycheck by paycheck basis. If you put the annual limit in your 401k by the end of June, you don’t get any company match in July through December. Of course you could front load as much as possible, but then if you get a mid-year raise (sometimes happens) you lose a bit of match. In a average year the extra growth should make up for that tiny loss, but in a bad year it’s gone.

    • The Mad Fientist
      July 6, 2014 at 2:25 pm

      Yeah, I warned about that in the Front-Loading post but thanks for bringing it up here. The last thing you want to do is lose out on some employer matching so make sure you leave yourself enough of a buffer to account for potential wage increases throughout the year.

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