FYI: Leverage” and “retirement” are two words you don’t normally hear together, but that’s exactly the combination one new exchange-traded fund is cooking up.
The Strategy Shares NASDAQ 7 HANDL Index ETF, which is slated to trade under the ticker HNDL, will use derivatives to boost the returns of a portfolio of other ETFs, regulatory filings show.
Regards,
Ted
https://www.bloomberg.com/news/articles/2018-01-16/new-leveraged-etf-of-etfs-targets-retirees-seeking-7-return

Of course that was never exactly Lynch's advice, more 'understand what you invest in' ---
https://www.investopedia.com/articles/stocks/06/peterlynch.asp ---
and he did often say things like 'know what you own and know why' etc.

Investopedia is describing stock investing (as one can tell from the URL). Investing in sectors/industries is a little different - one does not dig into the balance sheets of scores of companies.
I'll let Mr. Lynch speak for himself regarding how his oft quoted advice applies to stocks and to sectors/industries:

“I’ve never said, ‘If you go to a mall, see a Starbucks and say it’s good coffee, you should call Fidelity brokerage and buy the stock,’” Lynch says, some 25 years after his retirement ... “People buy a stock and they know nothing about it,” he says. “That’s gambling and it’s not good.”

and

“If you’re in the steel industry and it ever turns around, you’ll see it before I do.”

https://www.marketwatch.com/story/peter-lynch-25-years-later-its-not-just-invest-in-what-you-know-2015-12-28 (originally in WSJ.com)

I've always had a world stock fund as the core of my portfolio, SGENX was the first fund I bought when I sold my farm and thought it would be a good idea to start a retirement account before I blew it all. Jean Marie Evillard was the reason I bought this fund, but I have since gone with his successor, Abhay Deshponde at CETAX. Although SGENX is listed as an allocation fund, it held little in bonds, using cash and gold instead, to diversify. It also had a large cap bend that I have always sought to balance with a small or medium cap fund. EVGBX, GLFOX, Grandeur Peaks or HEOMX are some of the funds with managers I am or was willing to put money with in order to do this. And that is the crux of the matter, I started with the best manager and have always found managers in this sector I was willing to do business with. I prefer managing mangers to investing in an asset class.

"Tip: The retirement years pass by much faster than the work years."
Man, tell me!

@MikeM ... Nice work planning for your retirement. I can’t offer much help because my unorthodox manner has been to run the whole thing in “slow-mo” (conservatively positioned) so that even withdrawing a larger sum during down year(s) won’t ding me too badly. Perhaps it works better for me because of my steady pension or modest lifestyle. Don’t know. But no cash reserve beyond what’s committed to cash in the investment portfolio. Generally, I use distributions to rebalance things out. I don’t recommend this for others.
But I’d say you are on the right track based on some of the sharper people I’ve followed here or spoken to. Good job. The approach you are exploring is much more typical. And I suspect you are doing a much better job than most are at this stage.
Tip: The retirement years pass by much faster than the work years.

I believe Schwab's MM is at 1.2 or 1.25 now. I met with my Schwab guy yesterday and we talked about setting up a "safe-bucket" of 4 years needed withdrawal income when I start retirement. We both agreed setting up that bucket (still as an IRA) at an on-line bank like Ally or Synchrone would give slightly higher rates, maybe in the 1.3 range, and also have the CD option available. In any case, that is what I will be doing.

Correct me if I am wrong, but Fidelity has several higher minimum requirement money market funds with yields over 1.40% to as high as 1.52%. I talked to a branch manager who didn’t seem too up to speed on these funds other than to say they aren’t very liquid. I think he meant the money is not readily available if you suddenly want to buy another fund. Apparently the managers of these higher yielding funds don’t want you to continually move in and out and can possibly ban you for future purchases if they feel you are too active. If we get three raises in the Fed funds this year these money market funds will be in the 2.25% range. That could be a positive change in the dynamics of some retirees’ retirement.

Here are Fidelity's prime MMFs:
http://fundresearch.fidelity.com/mutual-funds/category-performance-daily-pricing-yields/GPMM
There are a couple of things I can think of that the branch manager might have meant. One is that these higher yielding MMFs are prime funds, meaning that they're not government only funds. These days, that means that they could impose a redemption fee or freeze your money for a week if the fund gets too close to breaking a buck. (Institutional prime funds also have floating NAVs, but mere mortals are only going to be looking at retail prime funds.)
http://www.newstimes.com/news/article/SEC-releases-new-rules-for-money-market-mutual-5647983.php
The other thing the branch manager may have meant is that these are "position" funds - they can't be used as the settlement/core account. So whenever you want to move money into them, you have to place a buy order. (Fidelity will automatically pull from them if you don't have enough money in your core account for a withdrawal or purchase, so at least that's not painful.)
The highest yielding MMF at Fidelity that seems to be within reach is FZDXX. $100K min in taxable accounts (though you don't need to keep that balance), but just $10K in IRAs. It's currently yielding 1.35%. (There's a more accessible share class of this fund, SPRXX, with a $2.5K min, and a yield of 1.23%.)
I'd look into Vanguard muni MMFs. Right now they're also yielding 1.35% or so. In addition, they're federally tax exempt, and for some states, locally exempt as well. That state exemption is even more valuable now that state income taxes are harder to deduct than before.

@msf. Correct me if I am wrong, but Fidelity has several higher minimum requirement money market funds with yields over 1.40% to as high as 1.52%. I talked to a branch manager who didn’t seem too up to speed on these funds other than to say they aren’t very liquid. I think he meant the money is not readily available if you suddenly want to buy another fund. Apparently the managers of these higher yielding funds don’t want you to continually move in and out and can possibly ban you for future purchases if they feel you are too active. If we get three raises in the Fed funds this year these money market funds will be in the 2.25% range. That could be a positive change in the dynamics of some retirees’ retirement.

I've own the Schwab robo for about the same time as this guy. I can't disagree with him. I also believe the complexity of the robo does not, or has not as of yet added total return value. The biggest concern I've had, and he stated, is having gold in the portfolio. I personally think gold is a bad investment over time. Certainly it has been over the time of his comparison.
The other thing I noticed, especially early on when I bought, was the robo seemed to have high international and EM exposure when you summed up equity, bonds and currency. Up until the 2017 that was not the place to be, so at least my robo suffered early on. Currency (like gold) in my mind is another complexity that adds little to no value.
I think I would recommend the robo to those that want absolutely no interaction with their portfolio, though as the author also notes, this can be done with a simple 1-fund retirement fund. I've been 50:50 in the robo and a self-managed portfolio. My plan is not to give up on the robo altogether, but to reduce it's weight in my over-all. Not exactly sure what I want that ratio to be yet.

@DavidV- With respect to your question: "What would be optimal investment for consistent income return of 4%", I think that @bee, above, gives you a pretty good insight. Both @Ted and @bee are well regarded with respect to financial matters; because they both mention VWINX perhaps you should give that fund particular attention.
The problem which all of us face is that all data sets for financial calculations are backward-looking: forward-looking data sets are very hard to come by. @LewisBraham, immediately above, expands on this.
@MikeM, above, makes an excellent suggestion with reference to on-line "Monte Carlo" sites which can be very helpful in analyzing individual retirement schemes. The Monte Carlo simulators have long been championed here on MFO by another poster, @MJG.
I've used the "Search" feature to go back and find a few of his references and links to such sites:
MJG Post #1 provides this Monte Carlo link.
and MJG Post #2 provides this Monte Carlo link.
You mentioned that "He will get help in portfolio management." Perhaps it would be helpful if you could expand a bit on this aspect- will he have the benefit of a professional manager of some sort?
We all wish you well in your efforts to help.

I've posted this article in the past, but seemed worth re-posting:
From Article:

Criteria:
The Retirement Income withdrawal will be 4% of the beginning investment value with each successive year's withdrawal increasing by 3% to allow for inflation. Any dividends collected in excess of this will be accumulated in a money market account (MMA) until the year the mutual fund produces less in dividend income than is required and the difference between the next year's household income need and the dividend collected is taken from the MMF. I'm assuming the interest rate on the MMA is zero. If the collective cash reserve is not sufficient…or non-existent…and the dividend collected that year is not sufficient to meet household income need, then sufficient shares will be sold at the end of the year to provide the required cash. This is repeated each December at the end of the month (last trading day).
VWINX is the clear winner. Providing 25 years of inflation adjusted 4% annual distributions with a residual value over 89% greater than its beginning value.

Article:
long-term-growing-income-open-end-mutual-fund-possible

FYI: The president of Fidelity Investments’ equity division is moving to a new role within the fund giant’s personal investing business later this quarter, leaving a post he has held since 2009.
Brian Hogan most recently led equity and high-income investing within the asset-management unit at Boston-based Fidelity. In his new role, he will be head of investment solutions and innovation within the company’s personal-investing unit, a Fidelity spokesman confirmed. The personal investing unit houses Fidelity’s brokerage platform, individual retirement accounts and other services for retail investors.
Mr. Hogan joined Fidelity in 1994 as a bond analyst. In 1998, he joined the stock picking unit and has held a number of roles including senior vice president of equity research. The equity division has faced scrutiny in recent months after The Wall Street Journal reported on a high-level firing there and allegations of sexual harassment.
Regards,
Ted
http://www.cetusnews.com/business/Fidelity-Moves-Brian-Hogan-Out-of-Equity-Division.rJANAA5Xf.html

A question only you can answer @Carefree
You really have to come to grips with visualizing a portfolio and determin what fits best inside of that. Individual funds are just building blocks for the risk return profile you want to achieve.
Here is a site that can help you with that. Build a few portfolios and compare what they give you in total return, max returns and max losses, volitility, ect... I have been using Portfolio Visualizer and it has helped a lot. I believe bee was the first to introduce it here at MFO. What I found was having many funds contributes nothing to the whole, in fact over-loading funds often detract from portfolio retiurn. Compare some of those example portfolios to one of the single TRP retirement funds that holds the equity % you are aiming for.
https://www.portfoliovisualizer.com/

Excellent choices for either the Wellington or Wellesley funds. But I would suggest maybe looking at a 1 fund diversified portfolio from TRP, any of their "retirement" funds (not the target date). Chose the one that fits the equity allocation (50:50, 60:40, 70:30, ect...) that makes sense for a 40 year old's expected returns and withdrawal needs. TRRGX, TRRBX, TRRHX.

Intend on selling OSTIX in my taxable account as I'm trying to lower my tax bill in 2018. It's a good fund but should be used in a retirement account, IMO. Not particularly tax efficient. I own enough high yield stuff anyway.

>> varies by how hot the hand is. Is this a way of advising (sometimes) to bail from extreme runups?

Point well taken. In the 90s - a few years from retirement - I found myself taking a crash course on investing. Bogle either drove me to drink or put me to sleep. Andrew Tobias, while less esteemed in the investment community, was much easier to digest (The Only Investment Guide You’ll Ever Need).
One thing that has always influenced me is Tobias’s suggestion small investors pick up all their marbles and walk away from the stock market if they ever find themselves in the midst of a gigantic bubble. Of course, the problem with this is in actually knowing whether a bubble exists. And he wasn’t clear on how to determine that. An additional problem now is that interest rates are much lower and the bond market likely more precarious than at the time Tobias wrote. So there isn’t a good alternative place to hide.
I did listen to Tobias, and also Bill Fleckenstein, in the late 90s and moved mostly to bonds prior to the 2000 equity rout. Fair to say the two of them saved me some money back than. Today I’m light on equity exposure - but not completely out as Tobias suggests. Subscribed recently to Fleck’s Daily Rap. Can’t say whether it’s a good investment or not, but does offer a starkly different perspective to most of the Bull crap coming from mainstream financial sources.

A Big Warning to those of us who used to do multiple IRA/401K to Roth conversions and then pick the best of the litter to keep as Roth and throw the runts back into the Traditional IRA/401K via a recharacterization... I am not a tax attorney, but it sure looks like the Trump-Republican tax bill recently passed takes the ability to do recharacterizations completely off the table for Tax Year 2018 and the future...
Once you do a conversion, it is irrevocable.
Plan accordingly. Don't get trapped pushing yourself into a higher bracket or Medicare Surcharge area.
Per Vanguard:
" IRA recharacterizations of conversions are going away.
Chief among the bill's features affecting retirement savers is the elimination of an investor's ability to recharacterize a conversion to a Roth individual retirement account (IRA) after the 2017 tax year."
[ https://advisors.vanguard.com/VGApp/iip/site/advisor/researchcommentary/article/IWE_InvComVanguardOnTaxBill ]

I've been both rebalancing (mostly taking tax losses as I'll rebalance gains in Jan) and getting rid of individual stocks that I've concluded (its about time) I don't have enough success with. Most of the stocks were energy related that I tried to buy when it tanked and a little healthcare too, like VRX (ugh!)
I also sold the last bit of FSCRX I had, a decision that was made when Chuck Myers announced his retirement but I took plenty of time implementing in a bunch of small steps.

Alarming is the fact that so few people have a written investment/retirement plan.
"• Calculating retirement savings needs. Forty-seven percent of workers who provided an estimate for their retirement savings needs did so by guessing, a survey finding that is consistent across the three generations of workers. Only seven percent have used a retirement calculator.
• Formulating a written strategy for retirement. Sixteen percent of workers have set forth a retirement strategy in writing. Ironically, Baby Boomers (12 percent) and Generation X (15 percent) are less likely than Millennials (20 percent) to have a written strategy."
While a written investment strategy is useful, it lacks a good deal of meaning until you estimate what you’ll actually need for retirement.
Some simple calculations (expenses and income) will tell a person where they are and what they may need to achieve in order to reach a Retirement Number that will provide them with a decent retirement. While there are many calculators that can be used to shortcut this calculation, I’m of the opinion that actually WRITING these numbers on a piece of paper will prove more meaningful.
After adding up your monthly expenses, you subtract your expenses from your monthly after-tax income. In most cases you will have a deficit.
You will need your investments to make up for the deficit.
Multiply the deficit amount by 25 (representing a 4% drawdown percentage) then divide by your tax bracket percentage (a 20% tax bracket = .80 – a 28% bracket = .72, etc.)
The final number is often called your Retirement Number or your Magic Number.
This is not a wishful number or some pie-in-the-sky number. It represents the amount of money that you should seek to protect – a number you don’t wish to fall below when you reach retire. Of course, as your income and expenses change over time, you will want to recalculate your Retirement Number.
If your investments fall below this number you should consider cutting your expenses or increasing your income – or both.
As I’ve said many times (and I won’t repeat myself) the trick is not just buying and walking away but also learning when to sell. Avoiding market crashes is the surest way I know to protect your Retirement Number.

@LLJB - you identified the crux of the matter that I was trying to address: "what return do you need, what's your risk tolerance and what's your time horizon?"
ISTM that investing for income is one response to this question. People in retirement need a certain minimum amount of cash monthly, they have a higher need for cash to more than barely get by, and beyond that want cash to enjoy their retirement. The more assured the cash stream is, the lower the expected long term result (and less money expected for that third tier - cash to have fun). That's what I was trying (apparently unsuccessfully) to illustrate with bonds.
I also mentioned annuities as a way to address some of the risk aversion. An annuity that pays out enough to meet just the first tier of needs (survival cash) can allay some people's concerns about having an adequate cash flow. As with most risk/benefit tradeoffs, that comes with the expectation of lower total returns.
Now to get into the weeds :-) One can remove reinvestment risk from bonds by purchasing long term bonds (say, 30 year Treasuries). If your retirement lasts longer than that, well, congratulations!
Would one automatically take the less volatile investment if two investments had the same expected long term returns? Not necessarily. Volatility is not identical to risk, and volatility (std dev) may not always be a useful figure. Since we're talking in the abstract here, I'm not going to worry about whether there are real world investments that behave as follows:
One investment returns 2%/month 50% of the time, and 0.0098% 50% of the time. You don't know which one for each month, but over the course of a decade it returns 230% (that's basically 1% compounded 120 times)). The other returns a rock steady 1%/mo, except for a random spike (down 50% one month, up 104.02% the next month).
The std dev of the first investment is 1.00 (since the monthly return each month is 1 ± 1). The second investment's std dev is 10.53. Yet I'd take that investment. All I would have to do is wait out the dip (crash?) for a month and I'd have a smoother ride. Keeping a one month buffer is all I'd need.
So much of this is subjective. Given two investments that you somehow know will have the identical performance over, say, ten years, and you will not be selling over that period of time, their paths to that return (volatility) don't objectively matter.
Which gets us back to addressing sequence risk. Some people will bifurcate (or trifucate) their portfolio into buckets to manage that risk, drawing from the most stable bucket and disregarding the volatility of the other bucket(s). Others will prefer investments that try to temper downside movements. It sounds like KCMTX might serve them well, at least if it provides the downside protection you described.