Is going 1099 too good to be true?

If someone told me that I could almost double my income without changing the type of work I do, I would think it's a scam, the classic "too good to be true" story.

And if that's all that I heard about going 1099, I would think it's a total scam. It would be too good to be true.

But the key thing about "too good to be true" scams is that they they do not tell you what the catch is.

In my book, I tell you about the catch, the risks. For example, I personally had lost over $200,000 in income due to to various security clearance related bureaucratic errors. I've also had contracts get delayed due to funding issues, and have had to deal with sucky clients.

So once you know the risks, going 1099 goes from "too good to be true" to "okay it's a reasonable risk with pretty good upside and known downsides."

All good opportunities are like that. They have an assymetric risk profile: fairly high upside and known and limited downsides.

There's a great scene in the movie The Big Short, a movie based on Michael Lewis' book about the sub-prime mortgage crisis that kicked off the great recession.

Ryan Gosling's character, Jared, works for an investment bank that is selling credit default swaps on sub-prime mortgages. Basically, he is on the side of the bet that says mortgages backed securities are totally risk free.

He is pitching these credit default swaps to Steve Carrel's hedge fund, and one of the emloyees, Vinny, asks Jared, "how are you f$!@kingus?"

Jared explains that basically the bank's incentive system works such that selling him the swaps will get him out of some trouble with the boss and he'll make a decent amount of money when the mortgage-backed securities go to crap. Vinny will win because the swaps are a bet against the mortgage-backed securities.

It's complicated, but the gist is that because Vinny understands how Jared will personally profit selling a crappy product, he feels more comfortable. The bet went from "too good to be true" to "okay this bet has massive upside and a known downside and I understand now my counterparty isn't hiding anything from me."

There are some opportunities that look too good to be true. If you don't know how you can lose, then they are. If you figure out how you can lose, then they stop being too good to be true. If the opportunity is still a good one after you know how you can lose, then it's worth taking it.

Going 1099 was like that for me. It may be for you too.

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