SpaceX is coming to your 401(k) — maybe

SpaceX is coming to your 401(k) — maybe

SpaceX is coming to your 401 k – Elon Musk’s ambitious venture, SpaceX, recently made its debut on the stock market through a groundbreaking initial public offering (IPO). The company’s massive valuation and futuristic ambitions have sparked global attention, but for many investors, the question isn’t whether they’re buying shares yet—it’s whether SpaceX will soon appear in their retirement accounts. With the stock market’s new rules and the rise of specialized investment vehicles, the possibility of encountering the company’s stock in 401(k) plans or other managed portfolios is growing.

Index Inclusion and the Path to Retirement Portfolios

Once a company goes public, it becomes eligible for inclusion in benchmark stock indexes, which many retirement accounts and investment funds track. This process, however, varies depending on the index provider. For example, the Nasdaq recently revised its criteria to expedite the entry of large IPOs like SpaceX into its 100-stock index, reducing the typical three-month waiting period to just 15 days. Similarly, FTSE Russell has streamlined its own procedures, allowing faster integration of significant market entrants.

CRSP, another major index provider, has set a shorter threshold, permitting inclusion after only five trading days. This means that within weeks of its IPO, SpaceX could be part of the indexes that define the performance of standard mutual funds and exchange-traded funds (ETFs) held in 401(k) accounts. However, not all indexes are moving at the same pace. S&P Dow Jones Indices, which oversees the S&P 500, has opted to maintain its traditional approach, stating that it won’t include SpaceX in its flagship index for at least a year. This decision contrasts with the earlier inclusion of Tesla (TSLA), which entered the S&P 500 in 2020 after a decade on the market.

Weighting and Market Impact

Even if SpaceX is added to indexes, its influence on major benchmarks may be limited. The company’s weight in these indices will depend on the proportion of its shares available for trading. During its IPO, SpaceX released less than 5% of its total shares, ensuring that its initial presence in indexes will be modest. “The stock’s performance is unlikely to significantly influence the direction of major indices that hold it,” explained Mike Dickson, head of research and quantitative strategies at Horizon Investments.

According to Rodney Comegys, chief investment officer at Vanguard Capital Management, the weighting of SpaceX in benchmark indexes like the Vanguard Total Market Index will start at a relatively small level. “No matter which index we’re talking about, the mega IPOs will enter the benchmarks as relatively modest weights,” Comegys noted. This suggests that while SpaceX’s stock may gain traction in certain funds, its impact on overall market trends will remain subdued in the near term.

The Role of ETFs in Amplifying Exposure

While traditional index funds may include SpaceX slowly, the emergence of specialized ETFs could accelerate its presence in investor portfolios. Kaush Amin, head of private market investments at US Bank Asset Management, highlighted that 21 ETFs related to SpaceX have already filed for listing. These funds aim to capitalize on the company’s hype, with some offering leveraged exposure to double its daily returns.

ProShares, for instance, has submitted a proposal for an Ultra SpaceX ETF that targets twice the performance of the company’s shares. This means investors could see both amplified gains on up days and heightened losses on down days. “The ETFs targeting double SpaceX’s returns speak to the ‘meme stock’ hype around the name,” Amin said. Such products could give individual investors more direct access to the company, though they also introduce greater risk compared to diversified index funds.

Strategies for Avoiding SpaceX Exposure

For those seeking to minimize their holdings in SpaceX, experts recommend focusing on broad diversification. “Keep your costs low, diversify and invest for a long period of time,” advised Comegys at Vanguard. “Never worry about one company—own the entire market.” This approach aligns with the philosophy of passive investing, where the goal is to mirror the performance of a well-rounded index rather than chase individual stocks.

However, the inclusion of SpaceX in indexes and ETFs could still pose challenges for investors who want to avoid it. If a fund or ETF that tracks the Nasdaq 100 or another major index automatically purchases shares as they become available, it may be difficult to escape the company’s influence. This is particularly true for retirement accounts, where the default option often includes a mix of large-cap stocks that are already part of the market’s core indexes.

Market Dynamics and Long-Term Outlook

Despite its $2 trillion valuation, which places it among the top 10 largest US companies, SpaceX’s journey to inclusion in the S&P 500 will take time. The S&P 500 currently excludes companies that have been publicly traded for less than a year, a rule that may be temporarily in effect for SpaceX. This delay could provide a buffer for investors who want to avoid exposure, but it doesn’t eliminate the risk entirely.

Analysts believe that SpaceX’s stock will continue to attract attention due to its unique position in both space exploration and artificial intelligence. However, the company’s relatively limited share availability means it won’t dominate any index in the short term. “The stock’s performance shouldn’t meaningfully affect the direction of major indices that hold it,” Dickson reiterated. This sentiment underscores the idea that while SpaceX is a significant player, its presence in retirement portfolios may be more of a gradual addition than a sudden surge.

For investors who prefer the old-fashioned method, direct ownership of SpaceX shares remains an option. By purchasing the stock independently, they can control their exposure without relying on fund managers’ decisions. This approach, while more hands-on, requires careful monitoring of market movements and a willingness to ride the volatility that often accompanies high-profile stocks like SpaceX.

Ultimately, the inclusion of SpaceX in 401(k) plans and other investment vehicles will depend on a combination of factors, including index rules, fund strategies, and investor demand. While the company’s IPO has already created a buzz, its long-term impact on retirement accounts may be more nuanced than the headlines suggest. As the stock market continues to evolve, the question of whether SpaceX will become a common holding in retirement portfolios is one that will be answered over time, not immediately.

“Broadly diversify, never worry about one company, own the entire market,” said Comegys at Vanguard. “Keep your costs low, diversify and invest for a long period of time.”

As the new rules take effect and more ETFs enter the market, the balance between exposure and diversification will remain a critical consideration for investors. Whether SpaceX becomes a staple in retirement accounts or a niche holding, its journey through the financial markets is a testament to the changing landscape of investing in the 21st century.