I currently have a 401k that I'm maxing out for this year ($18,000) and a Roth IRA that I'm maxing out ($5,500). I'm a bit behind on investments, but because of my income I think that I can play a bit of catch up in this year and hopefully the next year as well.
I have extra income that isn't going to either of those investments. Originally, I'd wanted to try to save enough for a down payment on a house, but after doing some thinking, I'm not sure if that's the wisest investment at this time in my life. (Buying a house would be an emotional decision - I want a space that is mine, and I don't want to throw away my money renting something that I want to be my home but isn't, if that makes sense.)
So I'm thinking. Because my 401k is a retirement plan (auto-balancing over the life of the investment) and the IRA is a similar setup, I'm thinking that I'd like to invest in income stocks to bolster my monthly income over time. I'm thinking I want to do this because I don't want to be actively trading stocks - but I also don't want to pay any management fees to have someone do that for me. Capital gains are only great if you sell the stock.
However....is it worth it? The average yield on a stock is, from what I read, 2-3% (in an index, S&P 500 I believe). As such, in order to even break the $20,000 annual income mark, I'd literally have to have one million dollars in income stocks. Because dividends are taxed like income, I'd have to have even more than that to turn a monthly profit. If I were to invest $2000 to $3000 per month into income stocks...it'd take forever.
Is my thinking correct, here? I'd like to try to break into dividend growth funds, but I'm worried that the dividends may not pay for themselves, even accounting for the growth factor. However, I think that this might be a good way to diversify as my retirement funds are heavily based upon capital gains (as they're long-term investments), and I think that being able to live on dividends instead of selling stock shares is probably a good way to build future wealth (especially if I spawn another generation).
Note that I'm a newbie to personal investing. Is dividend investing worth it?