Understanding the Power of Compounding

When investing in an alternative investment, investors may opt to receive distributions in one of two ways: a regular distribution (typically paid monthly or quarterly), or by reinvesting their distributions through a distribution reinvestment plan (“DRP”). Many investors enroll in a DRP to capitalize on the compounding interest effect. Reinvesting distributions*, and therefore accumulating additional shares, can have the effect of increasing both annual income and distribution yield on the original investment. The table below illustrates these potential benefits.

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THE COMPOUNDING EFFECT:

INCOME COMPONENT

  • Original Investment: $100,000
  • Original Shares Purchased: 10,000 (@ $10/share)
  • Distribution Declared: Based on 6 percent annualized*
  • Distribution Reinvestment Frequency*: Monthly

Power of Compounding

* The amount of distributions, if any, is uncertain and is determined by the board of directors of a company in their sole discretion and are not guaranteed. Until a company generates operating cash flows sufficient to pay distributions to stockholders, the company may pay distributions from the net proceeds of its offering or from borrowings in anticipation of future cash flows.
** 13,712 Shares x 6% Distribution = $8,227.20 in Annual Distributions or 8.23% Distribution Yield on Original $100,000 Investment after year 5.

In this hypothetical example, the investor has accumulated 13,712 shares after five years of reinvesting their distributions. The table below lists the potential returns the investor would receive if the alternative investment listed on an exchange or sold to another company.

THE COMPOUNDING EFFECT:

GROWTH COMPONENT

Assumes distribution reinvestment at annualized rate of 6 percent.

Power of Compounding

*** A company is not obligated to list on a national securities exchange or effectuate a liquidity event and may not list or effect a liquidity event within its targeted time frame or at all. If a company does not list on a national securities exchange or effect a liquidity event, its stockholders may have to hold their investment in shares of common stock for an indefinite period of time.

LEARN MORE

Talk with your financial advisor to learn more about reinvesting distributions, if it aligns with your financial strategy, and if it would complement your existing portfolio. 

THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY SECURITIES. AN OFFERING IS MADE ONLY BY A PROSPECTUS.

An investment in any products offered by Griffin Capital Securities involves a high degree of risk and there can be no assurance that the investment objectives of the program will be attained. Neither the Securities and Exchange Commission, the Attorney General of the State of New York nor any other state securities regulator has approved or disapproved of any securities, passed on or endorsed the merits of any products offered by Griffin Capital Securities or determined if any prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Griffin Capital Securities, LLC, Member FINRA/SIPC, is the dealer manager for various investment products sponsored and co-sponsored by Griffin Capital Company, LLC.