In case you hadn’t noticed, yields on bank certificates of deposit are now at the highest they have been since 1995. Still more significant, the difference in yield between conventional U.S. Treasury obligations and other instruments has also been growing. This means that a quick look at the Treasury market is no longer a good measure of how much competition the stock market is feeling from its traditional nemesis. Here are some recent examples: While the national average on one-year bank certificates of deposit is 5.42 percent (according to Banxquote.com), E-Trade Bank has been advertising one-year CDs with a 7.42 percent annualized yield. E-Trade Bank boasts that its yields are in the top 1 percent across the country, which suggests that you and I still have to hunt for the most attractive yields. At 7.42 percent, however, we’ll be well paid for our effort. The annualized yield on I-Savings Bonds the ones that are inflation adjusted will be 7.49 percent from May through October. The yield is determined by adding the annualized rate of inflation (3.82 percent according to a recent release) to a fixed return of 3.6 percent. Sold at face values of $50 to $10,000, these securities earn interest tax-deferred until cashed. Savers redeeming bonds before five years are subject to a three-month earnings penalty. (If you’d like more information, visit www.savingsbond.gov.) The yield spread between Treasury obligations and high-quality corporate bonds has widened. Recently, it was above 50 basis points (0.5 percent) for one-year maturities, rising to more than 150 basis points for 10-year maturities. There is also a large spread between Treasuries and Ginnie Mae obligations of similar maturity. (Ginnie Mae obligations are packages of home mortgages that have been sold as securities with the principal value of the investment guaranteed by the government.) Is this important? I think so, and for two important reasons. First, yield investing has been a pretty dismal activity in recent years because interest rates were in a long, secular decline. Now, with rates rising, people who are retired or supplementing earned income with investment income are about to get a better deal investing their nest egg. By combining carefully selected CDs, Ginnie Mae funds and a few high-quality preferred stocks, it is possible to have a current yield of 7.5 percent to 8.0 percent. That’s a big increase over the 5 percent to 6 percent retirees have been struggling to maintain. Second, the same rising yield that makes life easier for retirees may also have a significant impact on those still building their nest eggs for the future. You can understand by imagining what your 401(k) or other investment account statement will say at the end of June. If nothing changes between now and then, your large stock funds will be down around 6 percent, and your small stock funds will be down around 8 percent. For some, the figures will be a lot worse. Homely cash, meanwhile, will have earned 3 percent. As a result, the return on stocks is trailing the return on simple cash by 9 percent to 11 percent. We haven’t experienced anything like this since 1994. This is not the investment world we have come to take for granted. This is not the inalienable right to increasing wealth we associate with common stock ownership. In eight of the last 10 years, stocks have beaten cash cold. Money held in money market accounts, money market mutual funds and short-term government income funds has been an embarrassment. Stocks have been the “no-brainer” investment, providing record-breaking yearly returns. Now, the rules may be changing. If interest rates continue to rise as promised by Federal Reserve Chairman Alan Greenspan stocks will be competing against a stronger and stronger enemy, an enemy whose victory is expressed in lower price-to-earnings multiples. Will it happen? No one knows, including Alan Greenspan. What many investors may not understand, however, is that nearly half of the total return that stocks have offered since 1982 is the result of the quadrupling of stock price-to-earnings multiples, from 8 to 32, as interest rates fell. A sustained rise in interest rates could start to reverse that magic. Question: My story, then my question. For a few years prior to 1985, I invested in stocks, bonds and mutual funds. One day I heard Howard Ruff. After that, I started hearing lots of people like this little bear David Tice. One day I made a decision to clear out of all markets except for gold and silver. Anyway, I called my broker and said to sell everything don’t ask questions. Then I called Fidelity and closed all accounts. I sold all my real estate in and around Houston and moved to Colorado and built a log home on a beautiful lake with a view of the Continental Divide. Feeling smug in 1987 when the market crashed, I just felt nice and warm with all that 12 percent interest coming in every day. Then the 12 percent funds began to cash out and I was at a loss for what to do. I was still a bear and the market started its long climb without me. The question: What is the dollar value now, compared to 1985, of Fidelity fund, Contrafund and Equity-Income fund? Maybe I could have remained in the market all these years and still not have needed to sell. Boy, wouldn’t I be proud of myself and kind of rich, too, if only I had not listened to the little bears. F.R., San Antonio Answer: Do you really want to know? You’ve got a veritable river of spilt milk to cry over. Using Morningstar Principia, I assumed you had invested $10,000 in each of the three Fidelity funds you mentioned. I also added Vanguard Index 500 as a benchmark. The results, both before taxes and assuming taxes on distributions at 28 percent, are a pretty good indication of just how big this bull market has been. Contrafund, the best performer, rose to $157,089 before taxes, $112,741 after taxes. Equity-Income fund, the poorest performer of the three, rose to $73,561 before taxes, or $51,135 after taxes. Equity-Income fund, by the way, was at the 50th percentile in its category half did better, and half did worse. It should be noted that these investments still have some tax liabilities because not all gains have been realized and distributed. Questions about personal finance and investments may be sent to Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; or by fax: (214) 977-8776; or by e-mail: [email protected].