Is SpaceX Already in Your 401(k)? What Investors Need to Know

Matt: In Matt on the Money, we're continuing our conversation about SpaceX stock. It's been a huge talker.

This next part is important, even if you're not picking individual stocks. If you have a 401(k) or an IRA, or own an index fund or an ETF, you may be more connected to this story than you realize.

We've got Dan Bennett with Lakewater Advisory back with us. Dan, great to have you back.

For viewers who don't buy individual stocks, like me and a lot of other people, and prefer index funds, how could SpaceX still end up in their portfolio?

Dan: This is fascinating. There's a fast-entry provision through which NASDAQ effectively changed its rules a little bit, allowing SpaceX to be traded on its index after 15 trading days.

The typical timeline for price discovery after a company becomes public is about six to 12 months before it's added to an index.

But because of the sheer size of the company, it was added after only 15 trading days.

I think you're going to see more of this. You might see it with OpenAI later this year or with Anthropic.

These companies are staying private longer. When a company stays private longer, it becomes larger, and more of the buildup happens before the stock begins publicly trading.

Matt: Can you explain index funds in plain English? If a company gets added to a major index, what does that mean for the funds that track it?

Dan: An index fund is a passive fund. It tracks its benchmark or a particular index.

You might have an index fund that tracks the NASDAQ, or you might have an index fund that tracks the S&P 500.

It isn't trying to find the best stocks at the right prices. It's simply trying to match its given index.

The S&P 500, which is what a lot of people hold in their retirement accounts, voted against this fast-entry provision.

It's still going to require a price-discovery period of approximately 12 months, and companies must meet certain profitability standards.

SpaceX was not added to the S&P 500. It was only added to the NASDAQ.

Matt: Is it a fair concern that this could force passive funds, including retirement accounts, to buy a stock at a premium price?

Dan: I think that's a little overstated.

With the NASDAQ, they use what's called a market-cap public float. That basically means only the shares that are publicly traded are included when determining how much of the company is added to the index.

For SpaceX in particular, only about 4% of the company's outstanding shares are publicly traded.

SpaceX was added to the index and to funds such as QQQ, which is a ticker for an ETF that tracks the NASDAQ-100.

SpaceX makes up approximately 1% to 1.2% of the overall index, so it isn't a huge player yet.

Matt: Before we mention the newsletter, what's the bottom line for viewers? What should people check in their 401(k) or IRA before reacting to a headline like this?

Dan: If they have passive funds that track the NASDAQ, SpaceX was likely added to those funds.

Again, it's still a small position. It's probably not a top 10 or top 20 holding right now.

If they have a fund that tracks the S&P 500, SpaceX has not been added to it. That's an important distinction.

Matt: Okay. Let's talk about the newsletter. How can people find you and connect with the newsletter?

Dan: Visit LakewaterAdvisory.com. We publish a newsletter every two weeks covering retirement, stocks, and taxes.

Matt: It's a free newsletter. You don't have to pay to subscribe.

Dan: It's free. I write it, and it's short, straightforward, and easy to understand.

Matt: Dan, thank you so much for being with us. We appreciate it.