'The prospectus looks impressive': My financial adviser wants me to invest $350,000 in a UAE data center. Is this risky?

By Quentin Fottrell

'I'm in my 60s, recently retired and living my best life'

"I like my life, but I also like the idea of a big return after years of putting money into my 401(k) and other stocks." (Photo subject is a model.)

Dear Quentin,

I'm in my early 60s, recently retired, living my best life and I've been with the same financial adviser for years. At my last review he threw something at me I didn't see coming - a private syndicate in the UAE that invests in data centers.

The minimum buy-in is $350,000. Even for me, that's real money. If it went to zero, my retirement would still be fine. I know you're not supposed to put money you can't afford to lose into speculative stuff.

He says it's a way to get in on data-center demand, with AI and cloud computing driving it. Fine, I follow that. Everybody's throwing money at anything AI right now. But this isn't buying stock in a public company. It's a private syndicate overseas.

He seems sure about it, and the prospectus looks impressive. I just can't tell if that's because he did his homework or because he figures it's a decent fit for someone with my level of funds. I know that being able to afford a loss does not mean it's a reason to take the risk.

So before I write a check this size, what should I be asking him? Why would an adviser bring this to a client in the first place? How do I tell whether the return is worth it? And is this really diversification, or am I just making a huge bet on a trendy theme?

I like my life, but I also like the idea of a big return after years of putting money into my 401(k) and other stocks. What if I look back in five years and think, 'Why didn't I invest in that? Why was I so cautious?' I am a pretty cautious person, overall.

Tempted Investor

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.

Related: 'I feel like a loser': My stock portfolio is swinging wildly. Is it finally time to worry?

Don't let an impressive offer bedazzle you and stop you from doing your due diligence.

Dear Tempted,

Take a hike. Climb a mountain. Fly down a zipline. There are lots of ways to be adventurous.

If you're taking a big swing - and this is a big swing - you need to know you could lose the entire investment. Being able to afford a loss is absolutely a prerequisite for considering a speculative investment such as this, but it is certainly not a reason to make it.

You talk about taking the slow road to retirement, not diverting down dirt tracks leading you to the Emerald City of AI, and how it seems, well, boring and safe. But that strategy has worked. You have up until now remained diversified in various stocks and bonds - like everything from consumer and utilities to tech and healthcare - in both the U.S. and overseas.

This is where I think you are 100% overlooking something important: The same investing philosophy that got you where you are today - with $350,000 to burn like a stick of incense - is the one that you feel did you dirty. Take a bow at everything you have achieved. You now have choices.

The other - frankly, worrying - aspect of your story is the financial adviser himself. There may be a perfectly legitimate reason he recommended this investment. But I wouldn't assume that being in your 60s automatically means you should avoid risk altogether, but what is the role this $350,000 is meant to play in the rest of your retirement plan?

Don't let a fancy offer document bedazzle you and deter your due diligence.

Is he receiving a commission? Ask, in writing, how he and his firm are compensated if you invest - commissions, placement or referral fees, management fees, carried interest or other compensation. Also ask whether he is acting as a fiduciary in recommending this particular investment and whether he or his firm has any financial relationship with the sponsor.

What exactly are you buying for your $350,000? Is it an ownership stake in a fund, a special-purpose vehicle, a single data-center project, a group of facilities or something else entirely? Where is this investment vehicle domiciled exactly? What state laws govern it? What protections do you have if something goes wrong?

How much debt does it have? What are the fees? Can additional capital be called from you at a later date? (Some private investments do, in fact, make this part of the deal.) How and when do you get your money back? (If you get your money back.) Who gets paid first if things go pear-shaped? (If the investment is locked up for years, treat that lack of access as a real cost.)

Don't let a fancy offer document bedazzle you and stop you from doing your due diligence. Hire an independent securities attorney, CPA, or fee-only financial adviser with no financial connection to the deal, and have that person review the documents. Of course, the adviser who put this investment in your eyeline is telling you it's too good to miss.

But, look, I don't want you to feel that you can't invest in a data-center project. There are other ways to do that, depending on how much risk you are OK with handling. Data-center REITs can offer a balance of income and growth because they own, operate or lease facilities that house servers and networking equipment, and yet trade like publicly listed stocks.

Related: 'God works in mysterious ways': I became a Nvidia millionaire playing 'World of Warcraft.' Am I smart - or just lucky?

Diversification and data centers

It sounds like you were offered an "in" with a private equity or institutional infrastructure fund, which provides a path for high-net-worth and accredited investors. Such investments can provide direct exposure to the data-center boom, but they can also involve significantly greater complexity, illiquidity and risk than publicly traded stocks or ETFs.

Data-center and digital-infrastructure ETFs, like VanEck Data Center Supply Chain RACK and Global X Data Center & Digital Infrastructure DTCR, arguably spread your exposure across operators, REITs and chip manufacturers, etc. Publicly traded infrastructure companies and diversified ETFs can give you the exposure with more liquidity and transparency.

Companies like Nvidia (NVDA) that provide AI chips or power management and the aforementioned cooling systems (including Vertiv (VRT) or Eaton (ETN)) are other options. (These are only examples NOT recommendations.) Power and energy-infrastructure investments are a more tangential way to invest in AI and data centers, as they consume enormous amounts of electricity and water.

The UAE is a big hub for data-center investment, but projects there have their own challenges, including reliable power, cooling, water availability, connectivity, building permits and the economics of the data center in question. It could be a decade or more before you see a return, if you see a return on investment.

Data-center and digital-infrastructure ETFs arguably offer more diversification.

To address your other questions: A private investment may include projected returns and financial models, but those projections depend on assumptions that can go horribly wrong. What are the best and worst case predicted scenarios? If the project is delayed by two years, what then? What if construction costs go up (as they often do)?

Read the risk disclosures, projected returns, debt terms, assumptions, fees and conflicts of interest carefully - and pay attention to how long your $350,000 is locked up. Is it diversification? Adding a risky, concentrated private investment to your broader stock portfolio is not necessarily the best way to diversify.

Even if this $350,000 represents 10% of your portfolio, that 10% could still have a meaningful impact if the investment goes belly up. You say that you are worried that five years from now you might regret not making this investment. But the opposite is also true. What if you invest $350,000 and five years time you wish you had not invested?

Finally, your financial adviser came to you holding a "golden" prospectus, allegedly promising you riches, I'm guessing, in a decade or less. AI may transform the data-center market, but that does not mean this is the project that will help do it. If your adviser welcomes scrutiny? Great. If he pushes back? Not a good sign.

Related: Building U.S. data centers is getting so expensive that AI companies are moving overseas

By emailing your questions to The Moneyist or posting your dilemmas on The Moneyist Facebook group, you agree to have them published anonymously on MarketWatch.

More columns from Quentin Fottrell:

'I don't want to die on the sales floor': I'm 67 and earn $19.50 an hour at a big-box store. When can I finally retire?

'I'm never selling': I'm 47 and buy bitcoin with every dollar I earn. Am I crazy?

'People in the U.S. need to wake up': As a mortgage loan officer, I rejected applications from wealthy couples. Here's why.

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-Quentin Fottrell

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10-12-26 0916ET