# How to Calculate YTD Annualization Year-to-date, or YTD, annualization can help put an investment's performance in a context that's easier to understand and compare with other investment opportunities. For example, a 5% return over four months isn't nearly as useful to investment analysis as a 15% annualized return.

For this reason, it can be useful to know how to calculate the YTD annualization of your investment returns. Here's how you can do it.

The steps to calculate YTD annualizationTo calculate the YTD annualization for your investment returns, follow these four steps.

1. Figure out your year-to-date investment return by subtracting your investment's value at the beginning of the year (the initial value) from the investment's current value. (Note: If your investment has declined in value, this number will be negative.)

2. Convert this to the YTD return percentage by dividing the YTD return you found in the first step by the initial investment, and then multiply by 100.

3. Divide the number 12 by the number of months since the beginning of the year, which will give you the annualization factor.

4. Finally, multiply your YTD return by the annualization factor to determine your annualized investment return.

An exampleLet's say that one of your investments was worth \$10,000 at the beginning of the year and is now worth \$10,400 at the end of April. How can we express this return on an annualized basis to get a better perspective of the investment's performance?

First, your YTD return is \$10,400-\$10,000, or \$400. Dividing this by the initial \$10,000 value and multiplying by 100 gives us its YTD return percentage of 4%.

Since April is the fourth month of the year, dividing by 12 gives an annualization factor of three. Finally, multiplying the YTD return percentage of 4% by the annualization factor gives us an annualized return of 12% on this investment.

The Foolish bottom line: How to use this informationMany investors set performance benchmarks for their investment portfolios, such as an 8% return each year. By knowing the annualized returns of your investments, you can determine whether they are exceeding or falling short of your goals. And by knowing the annualized returns of prospective investments, you can find investments that are delivering the kind of performance that you're looking for.