Episode of "My Street Money Live" (host Louis Barajas) where he answers viewer finance questions. In this chunk he defines a "long-term" investing perspective (saying five years or more), explains safe alternatives for short-term needs (money market funds, high-yield savings, CDs, short-term bonds), and outlines tax implications for workers switching from W-2 to 1099 independent-contractor work, including self-employment tax responsibility.
Questions this video answers
Five years or more.
15.3%.
7.65%.
Around a year to 18 months.
Chapters
Welcome. This is Luis Barajas on my street Money Live. And we're here every Tuesday except for the next couple Tuesdays I'm going to be traveling, but every Tuesday you can count on me to ask to answer questions that are on my street Money Live. Okay, so let's start. Let's start. I'm going to read some, some you guys have been sending them. Thank you for sending some in advance. It allows me to kind of write down some thoughts. But the first one that I have here for this week is I keep hearing that I should invest with a long term perspective right now with the market uncertainty. My advisor or my friend said that it's I need to invest with a long term perspective. But what does a long term perspective mean? All right. When it comes to investing, usually it is when you're investing anything that is in equities or the stock market or in real estate or anything that doesn't have that actually you don't have a guaranteed rate of return. And when you invest some money today, you don't know what it's going to do actually within the hour, within the next day with the next year or two. And what happens is that sometimes you invest and we enter in a recession. It's not very often that we enter a recession recession, but it might happen while you do it. And so if you're going to need the money within a year or two, it may be risky because the market may be volatile. And you know, sometimes we do have recessions or we have down markets. And so you don't want to invest with a perspective that if you're going to invest in those type of investments which will earn you a longer or better rate of return in the long term, but you don't want to put the money there. So what does that mean? So technically anything that is five years or less is not a long term perspective. You want to have in your mindset that I'm going to invest in something, I'm going to buy a house in five or six years, I'm going to be retiring in five to 10 years. I'm going to be doing anything longer than five years is mostly a long term perspective. Some people think it's more than seven years now. So for example, you open up a Fidelity account, you buy some Amazon stock or you buy a portfolio that's already has, that's diversified in exchange traded funds in large capital, large cap stocks, small cap international, you put together a portfolio. And so what happens is you got to have in your mindset that the market can turn on, you can go down. So if you actually will need money in the next six months, year, two years, you may be lower than when you started with and that's not going to help you. Okay, so it's if in that case what you're going to do is you're going to put your money in kind of any more, they're more cash safe type of instruments. You're going to put your money in a money market fund, in a high yield fund, in a cd, in a one year, two year cd. It might be in, you know, in some bonds as well, but something that is not so volatile. Okay, so long term perspective, five years or more.
And just in case we do enter a recession and you know, some of the longest recessions we've had sometimes have been around a year to 18 months. And so it takes time for your money to recoup and get your investment back and actually make some more money on that. Okay, so long term perspective, five years or more.
Okay, next question. I have now this is a question that I just got that I received a couple days ago. But I actually have had a few clients who have been laid off in the last couple months and have come to me with the exact same question. And I'll read it to you here. I lost my job and now I'm doing some freelance work. I'll be getting a 1099 at the end of the year. I've always been a W2 employee. What do I need to be aware of now that I'm getting paid as an independent contractor? All right, so a lot of you who've been laid off saying, you know what, I have some value. Are there things that I can do? I can maybe get hired by somebody or I can do work for other people based on my expertise and they can pay me. But at the end of the year they're going to issue me a 1099 neck. I'm going to have to take that income and I'm going to have to report it on my tax return. Now the problem is that happens to a lot of people and they forget that they're going to have to pay not only just federal taxes and if they live in a state that's taxing you as well, just like here in California, you're going to have to pay state taxes. And there's this thing that your tax repair is going to surprise you with called self employment taxes. And what is that? Well, those are your Social Security taxes. And in the past when you were working, your boss, your employer was withholding federal taxes, withholding state taxes, and was withholding half of your Social Security taxes that you have to pay in because your employer was matching the other half. Right. And the Social Security tax and Medicare tax together is 15.3%. So they were withholding 7.65% from your paycheck for your Social Security taxes. And it doesn't appear on your tax return. It doesn't even show up. Right. What only shows up is either your federal tax liability, what was withheld, and either you're going to get a refund or not. But there's no refunds on Social Security taxes. So now you're responsible for 15.3%. Now you're not going to be paying taxes and all the income for the work that you're doing for someone else. When you get that 1099, you're going to be.
