SpaceX will begin trading shares publicly this Friday.
It’s expected to be the largest IPO to date, and the stock is likely to enter many people’s retirement accounts — whether they like it or not. One way that could happen is through index funds, which bundle a whole bunch of company stocks into a single investment.
Zachary Evens, manager research analyst at Morningstar, said the best-known index is the S&P 500.
“That index is a collection of the 500 largest profitable companies in the United States,” he said.
But there’s also the Russell 1000, the NASDAQ 100, and others.
“They’ve grown to be a significant portion of a lot of folks’ retirement accounts,” Evens said.
The index providers, like S&P and NASDAQ,, each make rules about which companies qualify, he said. They each have a waiting period before new IPOs can enter the index.
But amid all the hype leading up to the SpaceX IPO, Evens said the providers “changed their rules.”
NASDAQ and Russell both slashed their waiting periods, and could add SpaceX within weeks. S&P stood firm at a year.
And there’s a reason some of these providers are rushing to accommodate SpaceX — many investors want it.
“You have to remember these indices are a business,” said Erik Gordon, professor of entrepreneurial studies at the University of Michigan. “The people who run the indices make money.”
The more the index is used, the more money they make, said Minmo Gahng, assistant finance professor at Cornell University.
“Index providers, they have their own agenda to make them more popular, if you will,” he said.
But bending the rules for SpaceX goes against the idea that index funds should be set-it-and-forget-it, said Carolyn McClanahan, financial planner and founder of Life Planning Partners.
“The purpose of index funds and passive investing is so that you’re not trying to time the market,” she said. “You’re not trying to pick a stock that’s going to do better than another stock.”
McClanahan said the amount of SpaceX stock that enters retirement accounts will be small. Only a fraction of the firm’s shares will be sold publicly at first. But people who don’t want any exposure to SpaceX could have a tough time avoiding it.
“The reason for that is your 401-k provider already has a set menu of what’s included,” she said. “You can switch to actively-managed funds that might exclude SpaceX, but you’re gonna spend a lot of time and effort on doing that.”
These questions of big tech firms getting fast-tracked to index funds won’t end with SpaceX, said Gerald Cohen of the University of North Carolina.
“I think it’s in some respects gonna set a precedent, given the likely IPOs of OpenAI and Anthropic,” he said.
Those could begin trading later this year.