The Siren Call of Mutual Funds

The lure of high returns has investors -- pros and amateurs -- plowing record amounts into funds. Both Washington and Wall Street are worried.

For the millions of Americans who have poured a record torrent of their hard- earned cash into mutual funds, this should be the best of times. Last Thursday the Dow Jones industrial average went over 3700 for the first time ever, bearing with it the yields on many stock and bond funds. The average aggressive-growth fund has risen 29% in the past 12 months. Corporate-bond funds gained 13% overall. Commercial banks, fully aware how anemic their certificate-of-depo sit rates look in comparison, are actively luring customers into the wealth-generating world of funds. As a result, mutual funds sold through banks now...

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