Investing is a good way to increase your capital and ensure a stable financial future. However, fintech expert Sergey Kondratenko warns that it is necessary to be aware of the risks, among which investment fraud (or scam) holds a special place.
This type of financial manipulation occurs when a person or organisation hides or distorts important information with the goal of attracting investors into a fraudulent scheme. Therefore, it is extremely important for investors to be aware of the potential risks of fraud and take appropriate measures to avoid falling into a trap. The expert suggests discussing this topic.
Sergey Kondratenko on the Signs of Fraudulent Projects
In the past year, 2023, a huge amount of illegal funds, amounting to $3.1 trillion, passed through the global financial system. These funds are from money laundering and financing various types of crimes, including investment fraud.
Sergey Kondratenko also draws special attention to the fact that in 2023, the economy faced enormous forecasted losses from fraud and banking fraud, amounting to $485.6 billion.
The fintech expert asserts that investing in fraudulent projects leads to the loss of funds and a decrease in the level of trust in real, interesting projects. He suggests familiarising yourself with some factors that may be signs of fraudulent projects:
- Lack of transparency. Fraudulent projects often conceal their activities and do not provide investors with sufficient information about their operations, structure, financial position, etc. This creates a risk of loss for investors as they cannot assess the real prospects of the project.
- Promises of quick profits. Scammers' schemes often attract investors with promises of high and fast returns. However, such promises may be false, and investors risk losing their funds.
- Unstable business model. According to Sergey Kondratenko, scam projects are often built on unstable or unrealistic business models. They may operate on a "pyramid" scheme or use other manipulative methods to attract new investors, increasing the risk for all participants.
- Market manipulation. Some fraudulent projects may use market manipulations, such as buying their own assets to artificially increase demand and prices or spreading false information to attract new investors.
- Unverified promises. Scammers know how to promise beautifully but do not back up their promises with real data or evidence.
- Use of psychological techniques to influence investors. These include creating a sense of urgency or fear of missing out to prompt quick and unconsidered investment decisions.
- Lack of a track record of success. Fraudulent projects usually do not have a stable history of success or proven results that can be relied upon when making an investment decision.
Considering the listed factors, Sergey Kondratenko emphasises that investing in unverified projects is high-risk and carries significant potential threats for investors. Therefore, it is very important to conduct thorough research and assess all risks before investing your funds in any investment project.
How to Conduct Analysis Before Investing?
Before starting to invest, Sergey Kondratenko recommends conducting thorough research to protect your finances and avoid potential losses.
One of the first steps in protecting against investment fraud is a deep study of the company or person offering investment opportunities. Pay attention to their history, track record, and reputation. Promises of high profit with no risk or minimal risk should also raise suspicions.
The expert believes it is important to be cautious with unwanted investment offers that may come in the form of cold calls, emails, or messages on social networks. Do not trust unexpected offers without thorough verification.
Also, be wary if there is a sense of aggressive sales, often used by fraudsters to convince investors to act quickly. It may include using fear, greed, or urgency. A sensible decision requires time to study the investments and assess the risks.
"Guaranteed profit is another red flag," says Sergey Kondratenko. "No investments can guarantee a certain return, so promises 'too good to be true' may be a sign of fraud."
The expert advises consulting with a reputable financial advisor for those who are not confident in their ability to assess investments.
Sergey Kondratenko: Portfolio Diversification Strategies to Reduce Risk
According to Sergey Kondratenko, it is possible to avoid or insure against investment risks. However, the expert recommends adhering to the following rules:
- Diversification of investments - portfolio diversification. Spread your investments among different assets, such as stocks, bonds, real estate, blockchain, etc. This can help reduce the risk of losing all your capital in case one of the investments fails.
- Assessment of risks and returns. Carefully analyse the potential risks and returns of each investment object. Remember to consider both financial and non-financial factors that influence the success of the investment.
- Long-term perspective. Sergey Kondratenko advises investing with long-term goals in mind, not based on short-term market fluctuations. This will help maintain stability in your investment portfolio.
- Study the area of investment. Invest funds only in areas you are well acquainted with. This will allow investors to assess the risks better and make informed decisions.
- Sensible use of leverage. Avoid excessive use of borrowed funds for investing, especially in high-risk assets. Moderate use of credit can increase returns but also increases the risk of loss.
- Regular review of the portfolio. Periodically review your investment portfolio, perform rebalancing, and adjust your strategy according to changes in the market situation and your goals.
Kondratenko Sergey is convinced that investments are always associated with certain risks. However, competent capital management, portfolio diversification, and collaboration with verified partners help minimise these risks and achieve successful results.
This article was written in cooperation with BuyMedias