She is very upset about how much her portfolio has recently declined in value. She is 100% invested in an actively managed growth stock mutual fund. Her portfolio declined in value last year by approximately 30%. She has recently retired, having had a career as a successful entrepreneur. She is 56 years old. She has come to you with an investment strategy, and wants your opinion on whether or not the strategy will work. She presents you with a copy of the most recent Wall Street Journal (WSJ) annual mutual fund rankings.

She says, Wow, look at the performance of the best funds based on their one-year lagged return rankings. If I had purchased the best fund, which was a gold oriented fund, I would have made a 75% return last year. I have an ideaeach year I will simply buy the funds that performed the best from the WSJ rankings, hold those funds for a year, sell them at the end of the year, and then repeat this strategy every year based on the new rankings.

She then glances nervously at her diamond-encrusted Cartier watch, leans back in her chair, and says with a demanding, slightly derogatory tone, Soshould I follow this plan or not?

What advice do you give her about her plan to invest in prior-period winning mutual funds? What other general investment advice would you give her to make sure she is following a prudent investment strategy for her retirement portfolio?