SpaceX is coming to your 401(k) — maybe

By John Towfighi, CNN

(CNN) — SpaceX, Elon Musk’s massive space-exploration-slash-AI company, went public last week in a record-breaking IPO. But even if you’re not buying yet, you could still see the company’s stock in your 401(k) soon via a number of avenues.

And if you’re on the other side and want to avoid shares of the company that made Musk the world’s first trillionaire, there are things you should look out for, including potential funds to avoid.

As a publicly traded company, SpaceX is eligible to be included in some benchmark stock market indexes if it meets certain criteria. Many funds commonly held in 401(k)s and other accounts track different indexes. As a result, when SpaceX gets into some of those indexes, funds you already own might buy the shares as well.

That could happen in as little as a few days or weeks.

In May, the Nasdaq adjusted its rules to allow for the faster inclusion of mega IPOs like SpaceX into the Nasdaq 100, shortening the window to 15 days from three months before eligibility for inclusion.

FTSE Russell, another index provider, also adjusted its rules for quicker inclusion. SpaceX could be eligible to be included in indexes offered by CRSP, another benchmark provider, after five trading days.

However, S&P Dow Jones Indices, which manages the S&P 500, said on June 4 it wouldn’t follow suit for its benchmark index. That means SpaceX won’t be eligible to be included in the popular S&P 500 for at least a year. Tesla (TSLA), for comparison, went public in 2010 and did not join the S&P 500 until 2020.

But don’t expect exposure through index funds to boost or hurt your account just yet.

SpaceX’s weight in indexes is set to be based on the number of shares made public. The company went public with less than 5% of its shares immediately available, meaning its weight in indexes would be relatively small to begin with.

Because there’s only a limited number of SpaceX shares available, “the stock’s performance shouldn’t meaningfully affect the direction of major indices that hold it,” said Mike Dickson, head of research and quantitative strategies at Horizon Investments.

SpaceX’s $2 trillion valuation puts it in the top 10 largest publicly traded US companies. Despite the enormous headline numbers, its weighting in benchmark indexes like the Vanguard Total Market Index will start much smaller, according to Rodney Comegys, CIO at Vanguard Capital Management.

“No matter which index we’re talking about, the mega IPOs will enter the benchmarks as relatively modest weights,” Comegys said.

SpaceX exposure in other portfolios

While SpaceX will be fast-tracked into some indexes that are popular choices in retirement accounts, there are also other methods for getting access in standard brokerage accounts.

There are also a number of new exchange-traded funds that are planning to launch to build on the hype around the SpaceX IPO. Those could give more weight to SpaceX.

There are 21 ETFs related to SpaceX that have filed for listing, noted Kaush Amin, head of private market investments at US Bank Asset Management.

ProShares has filed to launch an Ultra SpaceX ETF, targeting double the daily returns of the company’s shares. That means double the gains on a day in the green, but double the losses on a day in the red.

The ETFs targeting double SpaceX’s returns, “speaks to the ‘meme stock’ hype around the name,” Amin said.

Keeping it simple

Investors who hope to limit exposure to SpaceX are best off just sticking to basic investing principles and ignoring the single-stock volatility, experts told CNN.

“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.”

The S&P 500, one of the most popular choices for passive investors, won’t have exposure to SpaceX for at least a year.

And of course, if you want specific exposure to SpaceX, you can also do things the old-fashioned way — by buying and selling shares of SpaceX directly.

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