As SpaceX joins the Nasdaq-100, its stock could show up in your 401(k). Here's what to know.
As SpaceX joins the Nasdaq-100, its stock could show up in your 401(k). Here's what to know..
The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
SpaceX joins the Nasdaq-100 on Tuesday, which means mutual and exchange-traded funds that track the index will buy the company's shares .
Many such funds are held by passive investors saving for retirement. So if you have a 401(k), your retirement savings will likely be invested in SpaceX sooner or later, and that has many savers feeling squeamish.
The rocket company's stock has been volatile since its public market debut, surging to heady highs from the June 12 opening price of $150 and sinking to its lowest close on Thursday.
Those ups and downs aren't uncommon following major IPOs. Think Lyft ( LYFT ), Coinbase ( COIN ), Robinhood ( HOOD ), and Rivian ( RIVN ), which all saw major 12-month slides after going public, according to Truist chief investment officer Keith Lerner, who studied 30 of the last major IPOs.
Facebook (now Meta ( META )) shares dropped 32% in the first year of trading, while the S&P 500 Index climbed 10% during that same time.
What's different here is that this stock has an immediate impact for millions of retirement savers who invest in a 401(k) via broad index funds — and may have unknowingly acquired the stock.
Due to the easing of rules that kept unprofitable firms with no track record out of index funds, SpaceX became eligible for inclusion just 15 trading days after its IPO.
The Nasdaq 100 ( ^NDX ) index and the Russell 1000 ( ^RUI ) changed their rules to accommodate mega IPOs like SpaceX into their flagship indexes within the first few days of trading.
As a result, 401(k)s and other retirement accounts will have exposure to SpaceX — mostly through index and total market funds, including those that track the Nasdaq-100.
As a refresher, index funds are designed to track the performance of a specific market benchmark. They passively buy and hold securities in the same proportions as the index they follow.
So, any investor who owns shares in these funds will likely own SpaceX in their employer-provided plans. To be clear, most 401(k) exposure is small for now.
If you're worried about the stock's volatility impacting your savings, there are things you can do to manage that uncertainty.
Remember that you're investing for the long haul in a 401(k).
"You are picking strategies, not stocks," Robert Persichitte, a financial planner based in Arvada, Colo., said. "If that strategy includes SpaceX, it might still be appropriate, even if you don't like individual stocks in that strategy."
While SpaceX is a massive company, the publicly available shares are minimal, so its impact on a well-diversified broad-market index is limited, especially in the short run.
What makes an index fund attractive is that it holds only a percentage of the stock of companies on the open market.
As SpaceX insiders are allowed to sell their stock after required holding periods expire, however, the total number of shares on the market will increase, making the company a bigger factor in broad-based index funds. That's worth keeping an eye on.
