I was recently looking at a syndicated Real Estate investment that did some math to show what future returns might look like. The bottom line was that a $1,000 would turn into $2,360 after 10 years. They compute the
cumulative annualized return therefore, as
136/10 = 13.6% on your investment. This seems correct to me, since annualized returns on investments that do not reinvest earnings is computed as the arithmetic mean of the gain in each year.
But how should I compare this to a mutual fund where dividends and capital gains are reinvested? Since compounding applies with such a mutual fund instrument, wouldn't I compute the real estate returns as
(2.36)^0.1-1 = 9%?
In other words, if I want to compare this real estate opportunity to a mutual fund, shouldn't I view it as returning 9% and not the 13.6% that the brochure is telling me?