How I Plan to Boost My Financial Future with a Roth IRA Contribution

In this piece, we’ll check in on a case of a 20-something-year-old individual who took to the r/MiddleClassFinance subreddit in search of advice for how they can save up for their future using the Roth IRA. Indeed, the Roth IRA is an invaluable tool that can help young Americans really get ahead financially.

Indeed, staying on top of contributions (making the max allowable amount, which is pinned at $7,000 for those under the age of 50 as of this year or $8,000 for those 50 and older) is the first step. And while it can be tricky to save up such an amount in any given year, especially after all the inflation we’ve been through, budgeting with the goal of hitting the $7,000 target is the best move for young investors who want to receive the largest boost as they sprint down the road to retirement.

Maxing out one’s contributions is a smart first step

Of course, it’s becoming increasingly difficult to save these days, with the costs of housing, rent, and food continuing to rise. Tariffs are only exacerbating the affordability crisis for many of today’s young people. For someone who’s still relatively young and posting in the “middle class” subreddit, I’ll assume there are levers to pull such that the maximum allowable annual amount can be met.

Even for someone who can’t quite reach the $7,000 annual level in any given year, I’d still recommend contributing as much as one can. At the end of the day, the Roth IRA is a fantastic account to have to put your retirement nest egg on the optimal road. After contributing, the big question remains: what should one invest in?

For someone who’s in their 20s, I’d strongly suggest going with an asset allocation that skews towards equities.

Indeed, I’m not against going 100% on stocks, provided one has the risk tolerance and a long-term investment horizon. In the case of our Reddit user, they’re still young and are looking to build a nest egg to fund a traditional retirement. With that, I think there’s a strong case for investing any contributions into a handful of index ETFs.

What stocks (or ETFs) should one pick up?

Most passive investors on Reddit are fans of just buying the American market. For many, that means simply investing in a low-cost S&P 500 index fund or something broader like the Vanguard Total Stock Market Index ETF (NYSEARCA:VTI), which includes the mid-cap names excluded from a typical S&P 500 index fund that invests in the top 500 American companies.

Of course, there’s not all too big of a difference between the S&P 500 and VTI in any given year. It all comes down to whether or not 500 names are enough to meet one’s needs. Personally, I think one can stop at just owning the S&P 500.

There’s only one slight issue with the S&P 500 going into July 2025, however. It’s getting expensive after surging close to 24% since April. Now, the S&P 500 may not be anything close to a bubble, but with a price-to-earnings (P/E) ratio hovering just shy of 30 times, I’d say there’s a very fat premium that could make further gains harder to come by over the next couple of years.

Indeed, if you’re going to put it all on the S&P 500, I’d encourage investors to get realistic about prospective returns.

Can the index average 10% or more per year through the next decade?

If AI translates to significant productivity gains, then I could envision such a scenario. But if the technology takes a lot longer than expected to drive earnings growth, it could become tough to justify a more-than-29 times trailing P/E multiple.

What about Berkshire stock?

In a prior piece, I highlighted Berkshire Hathaway (NYSE:BRK-B) as a better (and cheaper) investment than the S&P 500. Billionaire investors, such as Monish Pabrai, have expressed a preference for Berkshire over the broader market due to valuation concerns. 

Now, Warren Buffett is stepping down come January 2026, but the conglomerate, I believe, still has what it takes to outpace the market, perhaps with less in the way of risk and volatility, given its gargantuan cash pile. If you’re a young investor seeking to build wealth, I have no issue with opting for Berkshire over an index ETF.

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