Start with a question
You made 5% on your investments this year.
A million becomes 1.05 million. The number in your account is definitely bigger. But are you actually richer?
The answer: it depends — and most people never check.
One lunchbox explains it
Say you have NT$100, and a lunchbox costs NT$100. You can afford exactly one lunchbox.
A year later your money has grown to NT$105 — a 5% gain. Sounds good.
But what if the lunchbox now costs NT$110?
- Your money: NT$105
- The lunchbox: NT$110
- You can no longer afford even one
The number in your account grew, but what you can buy shrank.
📌 That's the key idea: "the number got bigger" and "I can buy more" are two different things.
This has a name: inflation
Prices creeping up year after year is called inflation.
Governments track how much "the things ordinary people buy" have risen and publish a figure called CPI (Consumer Price Index). Think of it as a nationwide lunchbox-price index — except the basket also holds rent, utilities, transport, healthcare and so on.
In Taiwan, prices have risen about 12.4% over the past five years, roughly 2.4% per year.
So back to the question:
- You earned 5%
- Prices rose 2.4%
- You can actually buy about 2.5% more than before
That leftover after prices is your real return. The 5% on your statement is the nominal return.
Only the real return is real. The nominal return is just a number.
How to calculate it — one thing to watch
Many people simply subtract: 5% − 2.4% = 2.6%. That's close enough when the numbers are small.
But the correct method is to divide:
(1 + 5%) ÷ (1 + 2.4%) − 1 ≈ 2.54%
⚠️ Note the numerator is "1 plus 5%," not "5%." When dividing two growth rates, add 1 to both sides first. This is the most common slip — writing `5% ÷ 2.4%` produces a meaningless number.
The larger the returns, the more subtraction and division diverge, so it's safer to build the habit of dividing.
The second question: was that 5% worth it?
Now you know 5% leaves about 2.5% after prices. But one question remains.
What did you go through to get that 5%?
Stocks fall as well as rise. You might have been down 20% along the way, slept badly for weeks, and only ended up with 5%.
So what if there were an option that almost never falls and needs no worrying — what would that pay?
There is one. Government bonds — you lend money to the government, and it repays your principal with interest at maturity. Governments almost never default, so this is treated as the "essentially riskless" option.
Its return is called the risk-free rate. The name sounds technical, but the meaning is simple: what you can earn while taking no risk at all.
Taiwan's 10-year government bond currently pays about 1.97%.
So:
- You took risk and earned 5%
- Taking no risk would have paid 1.97%
- What you got for enduring all that volatility is the extra ~3%
That extra part is your actual payment for taking risk.
Why people confuse the two
You may have noticed: inflation is 2.4% and the risk-free rate is 1.97% — those are close.
So people often say, "close enough, just use the bond yield as the inflation number."
The direction isn't wrong, but it skips the part that matters most.
There's a reason they sit near each other: anyone lending to the government for ten years demands at least enough to cover expected price rises, or the money repaid has shrunk. So a bond yield already contains everyone's expectation of future inflation.
But close is not equal. Two examples show why:
Case one: prices rise 3%, the bond pays 2%.
You hold bonds, your money grows, but you can buy less. A gain on paper, a loss in reality.
Case two: prices rise 2%, the bond pays 4%.
You took no risk at all and your purchasing power still grew about 2%.
Same action — buying bonds — losing in one case, gaining in the other. The gap between the two numbers is the whole story.
Taiwan is currently in the first case:
- 10-year bond: 1.97%
- Five-year average inflation: 2.36%
- Real return: (1 + 1.97%) ÷ (1 + 2.36%) − 1 ≈ −0.39%
Negative. Money held in Taiwan government bonds is slowly losing purchasing power.
📌 If you had used the "bond yield ≈ inflation" shortcut, you'd have calculated a real return of roughly zero — turning "slowly losing" into "breaking even." A small gap, but a different direction.
Three lines: splitting "did I gain?" into three questions
Pulling all of that together, any investment can be judged with three questions:
Line one: prices (inflation) — did I beat rising costs?
If not, the number grew but what you can buy shrank.
📌 This is the minimum bar, not a passing grade.
Line two: the bond yield — was the risk worth it?
If your return roughly matches a government bond, you absorbed all that volatility and got nothing extra for it.
⚠️ When comparing, match the period and the currency: subtracting a US bond yield from a Taiwan stock return produces a meaningless figure.
Line three: the index return — did picking stocks help?
If you spent hours researching and still lost to "buy the index and forget it," that time and effort bought you nothing.
📌 This line is the harshest, and the most necessary.
How to check it on this site
1. Go to Rates and Purchasing Power for Taiwan's bond yields and cumulative CPI — lines one and two are both on that page.
2. Go to My Performance, enter your monthly deposits and month-end balances, and get your own annualized return. That page stores everything in your browser only.
3. The "Beat the Index" section on the same page shows the last two years of index returns — that's line three.
Using the five-year average inflation of 2.36% as the baseline, it looks roughly like this:
- 2.5% annualized: real return about +0.1% — barely holding your ground
- 8% annualized: real return about +5.5% — genuinely building wealth
That tells you far more than "I made 15% this year."
⚠️ But line one has a big blind spot: CPI excludes house prices
This has to be said, or you'll assume beating CPI settles everything.
CPI doesn't track house prices. Housing carries about 22.8% weight in Taiwan's CPI, but what's inside is rent, not the price of buying a home.
⚠️ This isn't a Taiwanese statistical error — every country does it this way. The UN, World Bank and other bodies classify housing as an asset, not something consumed — buying a house acquires property, it doesn't get eaten. So no country's CPI tracks house prices, the US included.
📌 The correct reading: CPI measures the rising cost of living, not the rising price of assets. It isn't wrong; it's answering a different question.
Two practical consequences:
① If you still plan to buy a home, CPI understates your bar. Taiwan's rent index has been flat for years while house prices ran far ahead. Your money can beat CPI and still fall far behind the thing you actually want to buy.
② If you run a business, your costs don't match the CPI basket. Shop rent, land and loan interest aren't in a consumer basket, but they're real money you pay every month.
What to do? Don't discard CPI — add a line:
- CPI → are my daily living costs outrunning me?
- A house price index (Taiwan's Ministry of the Interior publishes one) → am I keeping up with asset prices?
⚠️ But don't call a house price index "real inflation." It measures assets, which is a different thing from living costs. Merging the two into one number repeats the "bond yield = inflation" mistake somewhere new.
⚠️ And don't switch to bond yields as your inflation number either. Taiwan's 2-year bond pays just 1.76%, below the 2.36% five-year inflation rate — if your reasoning is that real costs are understated, swapping in the bond yield loosens the bar instead of tightening it. Exactly backwards.
Three easy mistakes
① The inflation figure changes with how far back you look.
Taiwan averaged 2.36% a year over five years, but only 1.61% over ten. The 2021–2023 price surge sits fully inside the five-year window and gets diluted across ten.
📌 So when someone quotes "long-run inflation," always ask which period. A single percentage point can flip the conclusion — Taiwan's 10-year bond is −0.39% against five-year inflation (losing) but +0.35% against ten-year inflation (gaining). Even the sign changes.
② Rates from different countries aren't directly comparable.
The US 10-year pays about 4.7%, Taiwan's only 1.97% — the US looks like a rout.
But that 4.7% is a US dollar return. You convert in and back out. If the Taiwan dollar appreciates 5% over that period, the entire spread vanishes and then some.
Comparing rates across currencies compares two different things, unless you account for the currency cost separately.
③ The "risk-free rate" isn't a rate you can actually get.
A bond yield is a market price — not the time-deposit rate your bank offers, nor what a money market fund pays after fees. It works as a reference point, not as your available option.
To sum up
Back to the opening question: you made 5% this year — are you richer?
You now have three questions to ask yourself:
1. Did I beat rising prices? (Otherwise the number just got bigger.)
2. Was the risk worth taking? (Otherwise buy bonds and sleep well.)
3. Did I beat the index? (Otherwise buy it and leave it alone.)
Three yeses means you genuinely gained.
Further reading: How to use the annualized return calculator.