Financial Planning

Four Green Ways to Pay Less Tax

A lot of people think that green financial planning is all about investments.

I beg to differ. As a comprehensive planner, I love to talk about the good you can do without investing a dollar. One great way is to act green and save money is on your taxes. Here are four big opportunities:

1. Donate to charity
If you itemize, donating items that you don’t need is a great way to get a deduction.

When acting green, there are generally good, better and best alternatives.
In this case, “good” is contributing your used clothing and household items to the charity of your choice rather than pitching it into the garbage stream.

Even better: you can also contribute used TVs and electronic items to charities that will recycle them.

best is finding charities that will actually reuse your electronic items. Domestic violence shelters use cell phones. Other charities refurbish your old electronics and send them to schools and developing countries that need them. One time I even donated an old mountain bike to a charity that sends them overseas.

Here’s a
nationwide website that connects you with local charity pickup services. You might have to scan the listings of each individual charity to figure out which accept items like mattresses and TVs that some charities won’t accept:

a Chicago charity that accepts electronics for re-use called FreeGeek. They have a resale shop and accept drop-offs:

Here’s a handy list of Chicago charitable organizations that details what each organization is looking for and what they do with it:

And here’s
where I donated my bike:

Common sense caution applies. Donating a computer with a hard drive full of personal information? Make sure you are comfortable with programs that wipe it clean before setting up your pick-up. Even if you don’t want to donate your hard drive, giving away old printers, scanners and cords don’t offer security challenges.

2. Improve your home
These purchases get you a
tax credit through 12/31/2013 if your purchases meet energy star criteria:

1. Insulation
2. Roofs (metal and asphalt)
3. Water heaters (non-solar)
4. HVAC systems
5. Windows and doors
6. Biomass stoves HVAC systems (I’ve got to admit that I didn’t even know what these were!)

Doing a more ambitious project to either your principal residence OR your second home? Consider following energy star guidelines and get a tax credit. The credit for these expires 12/31/2016:

1. Geothermal Heat Pumps
2. Small Wind Turbines (Residential)
3. Solar Energy Systems

Also for your principal residence (sorry, no second homes here) if you get one of these bad boys before 2016, you can get a credit:

1. Fuel Cells (Residential Fuel Cell and Microturbine System)

You can find more details about all the above credits here:

3. Buy a Plug-in Car
The credit for hybrid cars is gone, but there are still some credits left for buying a plug-in. Here’s the link:

4. Get money from your state
Finally, most states have green tax incentives. Here’s the website to help you look up your state:

I looked over Illinois’ list and it seemed to be primarily incentives that relate to the construction industry. However Illinois is in a fiscal-crisis-mode, not a dolling-out-tax-incentives mode at the moment. Other states are more promising.

By Bridget Sullivan Mermel

How do Guns Make the Grade in a Portfolio?

confused blog picture
Dear Bridget,

Recently I’ve read reports that the
both the California and Chicago teachers pension funds are either reviewing or selling investments in guns. What do you make of it?


The trustees in these cases are walking a fine line. If they decide to divest of all gun manufacturers, they are eliminating a market sector, and research shows that hurts investment returns.

Divesting in entire market sectors was the approach back when the socially responsible investing (SRI) movement started. Funds that follow the strategy are called “Excluders” because they are excluding investments based on their market sector.

The problem is that research has subsequently shown that Excluders show weaker returns. Lowering your diversification by eliminating a market segment doesn’t help your portfolio in general.

Because Excluders were the initial strategy that many socially responsible investors followed, the entire SRI movement has been labeled with not making market returns.

If the trustees decide to keep investing in gun manufacturers, but judge which gun manufacturers are the best on environmental, social and governance issues, they are following the strategy of “Includers.”

Many studies support that Includers do as well or better than the market in general.

So the current debate: First, a
lot of the newspaper stories are unclear about what the trustees of different funds are actually doing. The headline might imply they are dumping the gun market sector, but buried in the story are details that really matter. In the case of California’s teachers pension fund, they are reviewing their portfolio for gun manufacturers that make guns that aren’t legal to own or sell in California. If they find investments in their portfolio that meet that criteria, then they will give the manufacturer an opportunity to change to comply with their new standards.

That approach doesn’t make for sound-bite headlines, but that approach has been successful with other SRI initiatives.

Most of the divestments are small. In the case of the Chicago teachers pensions, less than $200,000 was sold, out of a total portfolio over 9 billion.

The biggest news on the scene is that the California pension trustees, known as CalPERS, is voting on an initiative similar to the California teachers. This pension fund is the Warren Buffet of socially responsible investing. When they make moves, research shows that just following their moves improves investor returns. I’m waiting for news on what they decide.

by Bridget Sullivan Mermel

How to Fix Capitalism

Don’t get me wrong, there’s a lot to love about Adam Smith. Each person acts in his or her own self-interest in a free market…what’s not to love?

Well, take my industry, financial advising, for example.

Most advisors know a lot about financial products than the person purchasing their services or products.

the client is not in a position to evaluate the quality of what they are buying. They rely on the advisor, who might be serving their own interests, not the clients. Insurance companies in particular create life insurance products that are too complex for even other advisors to understand.

This basic conflict of interest is one of the elements at the heart of the 2008 market collapse. If mortgage brokers were required to sell people products in their best interest would the economic collapse have happened? I sincerely doubt it.

Two countries, Australia and the U.K., are now mandating that financial advisors stop charging commission. They are requiring advisors to operate in their client’s best interest. The U.S. is considering this, but we’re very far away, because a lot of big companies make a lot of money by conforming to a lower standard. A small part of the industry, which I proudly belong to, operates with a “fiduciary” standard, which means putting the client’s interest ahead of our own.

That got me thinking;
what if we changed capitalism? What if we required that when someone sold us something, it be in the customer’s best interest as far as the seller knew? What if most companies offered the lifetime warranties that a few companies do now? You could return any product at any time because you were unhappy with it.

As far as I know, it’s a radical idea!

I know a lot of people are going to say, Bridget, what are you trying to do, put Twinkies out of business? I mean who could sell Twinkies under that system? Wait! They’re already out of business.

Sure, this would change our legal code. Yes, there are a lot of practicalities to work out. But isn’t it worth considering and debating ideas that might improve the world?

Attorneys, CPAs, and doctors already have this standard of care. Why not the rest of capitalism?
Why not shift the responsibility to the seller? That way if they know they have a product that isn’t in the customer’s best interest, it would be their responsibility if they sell it, not the buyer’s responsibility to buy it.

by Bridget Sullivan Mermel

The Bitter Pie: Financial Advisors Industry Statistics

pie 2

The industry I am in confounds me. Why are so many consumers so poorly served?
Almost daily I hear stories of advisors hiding fees, not calling people back after initially selling them something, and having “advice” really mean selling people products they don’t need.

Most advisors operate with conflict-of-interest imbedded in the way that they operate. Advisors who make money by using a commission AND charge people for their advice, the “fee-based” advisors, are the worst. Next bad are the advisors who just charge commission. These business models are ripe for corruption; the advisor builds trust then recommends a solution to a problem that makes the advisor the most money.

Fee-only advisors operate with less conflict of interest. In fact,
most fee-only advisors pledge to put the interests of their clients ahead of their own. However operating fee-only generally means charging based on the amount of assets that you’re managing. That leaves clients with inadequate advice with their two of their biggest challenges—real estate and taxes. The ACA retainer model avoids the pitfalls of all the other business models. The advisors in ACA believe we have a better MO.

However, the pie chart above shows our market share in the industry.

Yikes! We’ve got a lot of work to do.

by Bridget Sullivan Mermel

The Five Steps “Say Anything” Advisors Use to Get You to Buy Products You Don’t Need

Consumers don’t know who to trust in the financial industry and the recent re-combinations and melt-downs haven’t helped. I look at how advisors operate on a continuum with two extremes: The Say Anything Advisor, and the Honest John.

The Say Anything Advisor

For the Say Anything advisor, the key goal is making the sale. Here are the five easy steps:

1. Gain trust by listening carefully to what a prospect says
2. Pick up on a prospect’s biggest fears
3. Harp on the fears
4. Offer a solution to the fear that entails using well-researched buzz words that appeal to a prospects emotions
5. Sell the advisor’s products.

Here are some common fears and corresponding buzz words that Say Anything advisors use to hook people into buying products they don’t need:

Buzz Words of the Say Anything Advisor:

Prospective Client Fear
Buzz words to hook you into the “Solution”--repeat often!
Reality behind the “Solution”
I’m paying too much in taxes
Tax loophole
Tax haven
Tax savings
Tax free
Low or no return mutual funds that are only appropriate for the top 1% of taxpayers
I’m might get sick and die

Take advantage of being healthy now in case you can’t get insurance later

Protect your “loved ones”
Life insurance that you don’t need
My investments aren’t returning as much as they could
Beat the market
Outperform the market
We can do better
Overly complex “investment strategies” that seem to go in one direction--down.

Some organizations focus on training Say Anything advisors and developing products to cater to the Say Anything Advisor side of the continuum. MorganStanley SmithBarney, Northwestern Mutual Life: I’m talking about you. I have met some Honest Johns among your ranks, but not many.

What the Honest John Advisor will say

On the other side of the continuum is the advisor I call the Honest John Advisor. The Honest John Advisor follows the following protocol:

1. Gain trust by listening carefully to what a prospect says
2. Pick up on a prospect’s goals
4. Offer solutions that help the client accomplish their goals that entail using well-researched, low cost strategies that take some effort to implement.
5. Help the client implement the strategies.

Strategies of the Honest John:

Prospective Client Fear
Solution proposed by the Honest John Advisor
Additional Comments
I’m paying too much in taxes
Have a qualified professional review your tax returns and see if they can offer suggestions on how you can save money.
Often you can employ strategies retroactively and file amended returns. Also looking at your tax situation in advance often helps know what tax strategies to employ in a particular year.
I’m might get sick and die

Live life to the fullest now! Get life insurance if you have dependents.
Most people don’t need life insurance, but if you do, low cost term is generally available.
My investments aren’t returning as much as they could
Nobel-prize winning research indicates that you can’t beat the market and that relatively simple investment strategies yield the best results.
Your money is better spent getting comprehensive advice rather than overly-complex investment advice from advisors trying to justify their fees.

by Bridget Sullivan Mermel

Breaking up with My Bank

Dear Bridget,

Although I like a good vampire movie, I don’t like it when I feel like my big bank has fangs in my neck. Between high fees, low interest earnings, and lousy service I am fed up. Don’t get me started on the way they game the political system and the foreclosure crisis. I’m ready to change. Help!

Not heartbroken

Dear NH,

Wow! Call me Bridget the Big Bank Slayer.

If you want to switch banks, here are some suggestions:

Suggestion one: stop auto-pays at your current bank.
The big banks focus on convenience; they were the first to figure out banking online makes it difficult to switch institutions. Auto-pays make it that much tougher to leave.

To prepare for the break-up, stop auto-pays; paying everyone manually through your online banking system is fine. Consider getting a regular paycheck instead of direct deposits. Or, find out what your payroll department will require for you to change the direct deposit of your check. Once you’ve switched to a new bank and you feel good about it, go ahead and start up the auto-pays again.

Suggestion two: Explore your local community banks
Local community banks are privately owned local banks. That means that they take deposits and loan them out to the local community. Large national banks may do some community lending, but with local community banks your dollars on deposit should help the local economy, not trickle off into corporate never-never land or the derivatives market.

If you look around when picking banks you can typically find a local community bank that is convenient to where you live or work. Online banking will probably be available, perhaps with an interface that seems more basic than as with the too-big- to-fails. When I got fed of with my big bank, I checked the ratings on Yelp before picking North Community Bank in Chicago for a lot of my banking.

Suggestion Three: Explore Credit Unions
Credit unions are created when groups of people pool their resources, hire a manger to run the operation, and provide banking services to themselves. Credit unions are owned by their members and can limit their membership.

They are run typically in a straight-forward manner with transparent agendas. They’re not trying to lure you in and extract fees. They’re trying to provide the best service to the most members.

Often credit unions originate with employers. I’m still a member of Summit Credit Union in Wisconsin, which I joined because my coworkers at my part-time job working for the state government when I was in college told me it was a good deal. Other credit unions have geographical boundaries. Here’s a website to help you locate a credit union that might work for you:

Suggestion Four: Find a Community Development Bank
Just add “development” to a community bank and you’ve got another type of bank. The difference between a community bank and a community development bank is that a community banks lend money to the community at large and community development banks focus their lending on people who don’t have access to regular banking. In other words they reach out to the economically disadvantaged.

Community development banking has taken off since legislation that encourages it was passed in the 90s. Although a rapidly growing sector of banking, there are far fewer community development banks than either community banks or credit unions. While deposits up to $250,000 are insured by the FDIC, this type of bank typically lacks some of the convenience factors of other banking institutions.

I posted a listing of community development banks on my website from Green America:
Green America Listing of Community Development Banks

For many people, the ideal would be banking at a community development bank down the street. Unfortunately, most people don’t have that available. Just like many decisions, picking a bank requires striking a balance between idealism and pragmatism.

So how to make decisions? Here’s my recent experience. I have one account I’m interested in moving right now: my high-interest Internet savings account.

I recommend high-interest Internet savings to stash emergency funds. Personally I’ve had this type of account with ING Direct for over 5 years. These accounts pay about 1% right now. That might sound pathetic until you open up a Chase statement and see the interest on their savings accounts: .01%. That’s right, the Internet accounts pay 100 times more.

From the bank’s perspective, I think these accounts are a marketing tool to get deposits. As a customer, my big concern is that a high-interest account will suddenly and silently become a not-very high-interest account. The biggest risk I’m taking in switching is that the bank will withdraw the high-interest.

So what are my options? My local community bank and my credit union don’t offer high-interest Internet savings. I haven’t found many that do. If I’m going to bother switching, it’s going to be to a local bank.

Chicago was home to one of the pioneers in community development banking, ShoreBank. Politicians of almost every ideology like banks that help people who can’t get loans, and ShoreBank was located in the community where Barack Obama got his political start as an Illinois state senator. I would venture to guess that somewhere there is a photo of a young-looking Obama smiling in between the founders of the bank.

ShoreBank got in trouble like a lot of banks did and ended up being taken over by the FDIC and selling its assets to a group called Urban Partnership Bank a few years ago.

Urban Partnership Bank is the ultimate political hot-potato. When ShoreBank was in trouble, some folks on the right claimed that because of the bank’s association with Obama, they were getting preferential treatment.

But the folks on the left have a lot to hate, too. Because who owns Urban Partnership Bank? It’s a private bank owned by a consortium of foundations and companies (including Goldman Sachs and Citibank). The owners sounds like fat-cats with questionable motives to many on the left.

So back to my banking decisions. When it comes to what I call sustainable personal finance, I’m not a purist; I’m a pragmatist. Urban Partnership Bank has a high-interest Internet savings account. Their mission is to loan to people who can’t get loans. They’re paying 1% and are FDIC insured. Political hot-potato or not, I’m going to give them a try.

by Bridget Sullivan Mermel


Crisis: Real or Manufactured?

Is the “debt crisis” something to worry about?

Safe investing


Dear Bridget,
In the 70s, when I was in high school, I shared a Pinto with   
my sister.  She bought the gas, I bought the oil.  When the BP   
crisis hit, inspired by the exhilaration of getting the Pinto   
up to 60 mph with the windows open, I bought some shares.  I   
know it's a risky investment.

I'm wondering what I can buy on the conservative side to   
balance my wild freewheeling.   Maybe my angst is out of line,   
but I would like to buy something that will most assuredly   
maintain its value.  I'm not impressed with the interest rates   
offered by FDIC-insured cash accounts. I've heard some gold   
talk, but it seems like a big step into the back-alleys of   
commissions and swindlers.

I am a regular reader and follow your advice closely to   
maintain some savings.

Pinto Inspired

Dear Inspired,   
I love your reasoning for buying BP!

Pretty much all researchers, including Nobel-prize winners,   
conclude that you can't "beat the market."  In other words,
one can reliably pick stocks that will make more money than the   
.  Still, some people have an emotional desire to pick   
stocks, and there's nothing wrong with that.  Just be smart.

I suggest that you hold your stocks in a separate "fun money"   
Don't let the account grow to over 10% of your total   
portfolio.  When the value of your "fun money" grows to over   
10% of your total portfolio, transfer some to your other   
accounts to bring it in line.

Never add money into your "fun money."  If it runs out, then   
you're stock picking days are over.  You're done.

For the other 90% of your money, design a well-diversified,   
tax-smart, low-cost portfolio.

Since you ask specifically about investments that are not   
I suggest US Treasuries known as "strips" as part of your portfolio.
You can buy these through your broker (like Schwab or Fidelity) or from US   
Treasury Direct.  Currently a buying a treasury strip that   
matures in 2026 costs approximately $5,470 and will pay   
$10,000 in 2026.  That's a yield of around 4%.

Any financial professional who earns money based on   
commissions will discourage you from this strategy.  
earn little if any commission on US Treasuries.  "Oh, the   
yields are so low," is what I've heard.  In fact, treasuries   
protect you against deflation, because even if prices on   
everything start dropping, in 2026, you'll get your $10,000.   
Plus, the yields on treasuries always seem low.  You're buying   
them because they're safe and earn more than a CD, not to try   
to out-earn BP.  The yield seemed low when I bought US   
Treasury Strips in early 2008, but seemed brilliant a year   

In fact, for clients and for myself, I build what is known as   
a treasury bond ladder for retirement.  The ladder is designed   
to have a set amount of treasuries maturing each year.  This   
creates what amounts to a guaranteed paycheck during   

You also ask about gold. 
You don't invest in gold; you   
speculate on gold. 
Gold grows in value when someone else will   
speculate more wildly than you did when you bought it.  Some   
people want gold in case all hell breaks loose.  It makes them   
feel safe.  They like the option of being able to make a run   
for it with their gold stash.  I like feeling safe, too.

If you're in this camp,
you could use 1-2% of your portfolio   
"fun money" to buy some gold.
  Take physical custody of it;   
put it in your safe at home.  Buy enough to get you over the   
border, and remember the practicalities you are trying to plan   
for; small coins will probably work best.  You don't want to   
be stuck trying to get change for $1000 gold bars when the   
banks have closed.

To take the next step down this road, add the following to   
your safe:  guns, ammo, water, and copy of your favorite Mad   
Max movie.  If you can't watch Mel Gibson anymore, I thought   
The Book of Eli was okay and 2012 was even better.  However,   
none of these movies feature a post- apocalyptic gold   
standard.   According to them, if all hell breaks loose,   
you'll want guns, ammo, and perhaps a jet.

by Bridget Sullivan Mermel

Don't Worry about Tax Hikes

Don't believe the hype on tax hikes. And certainly don't
spend precious energy worrying about them.

A Kate and Joe were in yesterday. They are professionals
raising four kids, who, between the two of them, make around
$350,000 a year.
They were bemoaning the fact that, according
to the media, their taxes are going to go up.

When we actually looked at their numbers, I had a different
prediction: their taxes won't go up.
How could this be?
Please excuse me while I get a bit tax-geeky (and
simultaneously simplify the tax code and the political system
for explanatory purposes.)

$15,000 of the $120,000 Kate and Joe pay in federal taxes is
the dreaded "Alternative Minimum Tax" or AMT.
Alternative Minimum Tax sounds appealing, it basically limits
the deductions of people who make between $200,000 and
$600,000 a year. It usually kicks in if you pay a lot in
property tax or state income tax and earn $200-600K. Most
people who are paying it don't know they're paying it and
don't care about the distinction between regular tax and AMT.
It's all the IRS to them.

if regular tax rates rise, before Kate and Joe would
actually have to pay more, their AMT would have to go down to
For instance, if the top bracket goes from 35% to 39.6%
on people making over $250K, Kate and Joe's taxes would
theoretically increase 4.6% * 100,000 = $4600. Because they
pay $15,000 in AMT, this "tax increase" would mean they'd pay
$4600 less in AMT and $4600 more in regular tax. The net
effect of the "tax increase" would be zero.

Using my example, the tax increases that the experts are
predicting will have the biggest impact on folks making over
But Kate and Joe, and a lot of people like them,
shouldn't worry about tax increases.

That being said,
I might turn out to be wrong. Have you heard
the pundits peddling fear of tax increases admit that?

by Bridget Sullivan Mermel

Don't Max out Your 401(k)

If you were to get on the Internet and poll the financial
gurus, the message you would get load and clear is: Save
No matter how much you've saved, you will be woefully
short when you get to retirement.

The first suggestion of these pundits? Put money in your
(I will use "401(k) as a surrogate for all retirement
savings plans: 401(k), 403(b), SEP, SIMPLE etc.)
I'm not against 401(k)s. Actually, I'm a big fan. However,
think the advice is wrong.

Here's my message: Save 10% of your income. Put your money in
a savings account. This will become your emergency fund.

Wall Street Journal Weighs in on Real Estate Prices

The WSJ weighs in on how real estate prices are doing around the country:
Home Sales All Over the Map

And how mansions are doing versus the rest of the housing market:
High-End Homes Frozen Out of Budding Housing Rebound

How to Think about Real Estate Prices

Confused about real estate prices? Is now a good time to buy? Is real estate ready to rebound? I don’t offer predictions, but I do offer a way to think about real estate..... Read More...

Bert Whitehead Weighs in on Madoff...

Bert Whitehead writes about how to avoid Madoff-type schemes, as well as other traps and rip-offs. Don’t let you or someone you know fall prey! Check out Bert’s Blog.