4. Buying stock on margin
Borrowing money from your broker to buy stocks, using stocks as collateral, is a good way to make a lot of money. Or lose a lot of money.In general, you can borrow part of the money needed to buy stock -- up to half of the stock purchase price.
All well and good: The upshot is that you can buy more of a stock than your funds would otherwise allow.
According to rules of the National Association of Securities Dealers, or NASD, and the New York Stock Exchange, or NYSE, the minimum requirement to enter into such a deal is a deposit of $2,000 or 100 percent of the stock's price, whichever is less. Individual brokerages may have different requirements.
If the market also heads south and the value of your portfolio drops below 25 percent of the value of the loan, you'll get a margin call, or a notification from the broker that you need to deposit more money or additional securities into the account.
If you can't cover the margin call, your securities can be sold at the discretion of the company. If your portfolio really tanks, you can end up with no stocks and owing money.
Using leverage to buy securities can be advantageous when the stock goes up, but if it comes down your losses are magnified. Also, the broker doesn't lend you money for free -- you have to pay interest on the loan, plus brokerage commissions.
"If you use it smartly and have an exit strategy and know what you're doing, great," says Greg Womack, Certified Financial Planner and president of Womack Investment Advisers in Edmond, Okla. "But for most people it's not a good idea."
5. Co-signing a loan
You may already have a mortgage, a car loan and credit card bills of your own, but co-signing will let you enjoy all the responsibility of another financial obligation with none of the benefits."If you're helping someone, probably one of your children, establish credit and you are comfortable in their ability to pay, then it might be OK," says Patricia Hasson, president of Consumer Counseling Services of Delaware Valley.
"I would make sure that I had enough room in my budget to pay it," she says.
If you can get one of your worst enemies to co-sign a loan for you, then it may one of the best ways to get revenge. All too often co-signers find themselves left holding the bag long after the other person on the loan has stopped paying it due to other more pressing debt obligations.