{"id":4122,"date":"2026-07-20T21:39:00","date_gmt":"2026-07-20T21:39:00","guid":{"rendered":"https:\/\/silvybrand.com\/?p=4122"},"modified":"2026-07-20T21:39:00","modified_gmt":"2026-07-20T21:39:00","slug":"spacex-in-your-index-fund-explained","status":"publish","type":"post","link":"https:\/\/silvybrand.com\/?p=4122","title":{"rendered":"SpaceX in your index fund, explained"},"content":{"rendered":"


\n<\/p>\n

\n
\n

Index funds are touted as one of the safest ways to invest. Rather than picking and choosing individual stocks, index funds let you bet on the market as a whole. So what happens when a company like SpaceX \u2014 a giant gamble<\/a>, and, in my opinion, terribly overpriced<\/a> \u2014 is fast-tracked into the Nasdaq-100? Does it suddenly threaten the stability of index funds based on the Nasdaq-100? Can a $1.77 trillion IPO<\/a> crater the retirement funds of regular people who would ordinarily have no interest in investing in Elon Musk\u2019s meme stock?<\/p>\n<\/div>\n

\n

The answer has less to do with SpaceX and more to do with index funds \u2014 how they work, their history, and why they\u2019ve been treated as one of the least risky ways to interact with the stock market. So I talked to Burton Malkiel, one of the people most responsible for the rise of the index fund.<\/p>\n<\/div>\n

\n

\u201cIf I were buying individual stocks, I would think twice about buying SpaceX, which is tremendously overhyped,\u201d he tells me. But SpaceX isn\u2019t a reason to avoid index funds, he says. To explain why, here\u2019s a dive into index funds, how SpaceX interacts with them, and how it all might play out.<\/p>\n<\/div>\n

\n

An index fund is an investment vehicle that seeks to match a specific market benchmark, such as the S&P 500 or the Nasdaq-100. It was popularized in part by Malkiel\u2019s 1973 book A Random Walk Down Wall Street<\/em>. The \u201crandom walk\u201d of the book\u2019s title means that the past prices of a stock don\u2019t predict the future, and because it is hard to predict the future, it is very difficult to beat the overall market returns over a long period of time. For that reason, most of us might as well just invest in the overall market and trust it will increase in value as a whole. \u201cA very small minority of stocks are responsible for the whole return, and experts can\u2019t pick them any better than the index as a whole,\u201d Malkiel told me.<\/p>\n<\/div>\n

\n

The strategy of index fund investment has been endorsed by Warren Buffett, who has suggested that the average investor is best served<\/a> by putting 90 percent of their money in \u201ca very low-cost S&P 500 index fund.\u201d<\/p>\n<\/div>\n

\n

And they are very popular! In 2024, the assets under management in passive investing, such as index funds, outpaced that of active funds<\/a>, according to Elise Ryan of State Street Investment Management.<\/p>\n<\/div>\n

\n

Why are people worried about SpaceX specifically?<\/strong><\/h3>\n<\/p>\n<\/div>\n
\n

Shortly before SpaceX went public, the Nasdaq changed its rules for the Nasdaq-100, so that a newly public company that\u2019s large enough can join the benchmark on its 15th day of trading. That rule change was requested by SpaceX, Reuters<\/em> reported<\/a>.<\/p>\n<\/div>\n

\n

When SpaceX joined the Nasdaq-100, on July 7th, index funds had to buy in. Interestingly, at close on July 6th, the stock was down<\/em>. There\u2019s some structural reason for that \u2014 namely, that everyone knew the index funds would have to buy in, and so banks and hedge funds most likely did some fun trades<\/a>. Index rebalancing funds made out like bandits<\/a>. Finance is fascinating and full of monsters.<\/p>\n<\/div>\n

\n

There\u2019s reason to believe that the index fund buying is part of the reason SpaceX had its initial IPO pop, according to research from Harvard Business School<\/a>. What\u2019s more, SpaceX is the initial entry into indexes for a number of expected mega-IPOs. Anthropic and OpenAI are expected to make their debuts later this year.<\/a><\/p>\n<\/div>\n

\n

Also, people don\u2019t like Elon Musk<\/a>.<\/p>\n<\/div>\n

\n

What does the index fund inclusion mean for SpaceX?<\/h3>\n<\/p>\n<\/div>\n
\n

Some degree of price stability. New IPOs often fluctuate wildly. For instance, Facebook\u2019s shares dropped 25 percent<\/a> the Monday after its 2012 IPO, tripping breakers to halt trades.<\/p>\n<\/div>\n

\n

Beyond the fluctuations from the market itself, a lot of people will soon be able to sell SpaceX shares that aren\u2019t yet on the market. SpaceX employees are subjected to \u201clockup periods,\u201d where they can\u2019t immediately cash out and sell their stock following the IPO. Those periods are going to expire, and doubtless some people will want to sell shares. The index funds are likely to \u201chelp absorb some of the selling<\/a>,\u201d thus keeping the price from dipping too low, according to The Wall Street Journal<\/em>.<\/p>\n<\/div>\n

\n

How important is SpaceX in these index funds?<\/strong><\/h3>\n<\/p>\n<\/div>\n
\n

The company has a market cap of more than $1.5 trillion as of this writing, which is obviously enormous. But the IPO sold less than 5 percent of the company\u2019s shares. Because of the way the Nasdaq adjusts its index<\/a>, SpaceX will be treated like a much smaller company.<\/p>\n<\/div>\n

\n

But remember, next month more SpaceX shares will be released from lockup. People with 180-day lockups can sell more shares than were initially sold in the IPO<\/a> after SpaceX publishes its second quarter financial results, notes Bloomberg<\/em>\u2019s Matt Levine. Those results are expected in mid-August. That will make it more important in those index funds \u2014 though whether the price will fluctuate much is anyone\u2019s guess, as short sellers are also<\/em> anticipating the lockup releases<\/a>. These market mechanics may explain some of the stock\u2019s short-term price fluctuation, even though the company hasn\u2019t had much major news occur.<\/p>\n<\/div>\n

\n

SpaceX may take up more room in index funds as more shares are sold. But it might not, as selling usually drives down the price.<\/p>\n<\/div>\n

\n

Why are people mad about SpaceX in index funds?<\/h3>\n<\/p>\n<\/div>\n
\n

One big reason is the amount of power it puts in the hands of Musk. The CEO of CalPERS, an important retirement fund, and the New York state and city comptrollers<\/a> sent SpaceX a nastygram about its \u201cnovel and extreme governance structure\u201d \u2014 specifically, that only Musk decides what to do with the company and everyone else is along for the ride. Musk is temperamental<\/a>, imperious<\/a>, and prone to erratic behavior<\/a>. That has consequences for shareholders of his companies<\/a>, sometimes leading to enormous swings in value<\/a>.<\/p>\n<\/div>\n

\n

Musk has the majority of the voting rights for SpaceX. In other companies, shareholders can theoretically influence outcomes through shareholder proposals. With SpaceX that isn\u2019t true. Other companies can be sued by shareholders for bad behavior, but SpaceX has limited shareholders\u2019 litigation rights. One way to avoid a company that has made these choices is to sell the stock \u2014 but the inclusion in index funds means that\u2019s harder.<\/p>\n<\/div>\n

\n

Also, again, people don\u2019t like Elon Musk<\/a>.<\/p>\n<\/div>\n

\n

But wait. I don\u2019t vote on the corporate governance for companies in my index funds. Why does corporate governance matter to me?<\/strong><\/h3>\n<\/p>\n<\/div>\n
\n

You don\u2019t, but the big indexers do<\/a>. That means a lot of power is concentrated in just a few hands. It\u2019s one of the worries people have about index funds. There are some other criticisms of index funds, too<\/a> \u2014 that they buy high and sell low when they rebalance<\/a>, for instance \u2014 and some investors believe they distort the market, making big companies even bigger. That\u2019s why some analysts have called index funds \u201cworse than Marxism.\u201d Coming from capitalists, that\u2019s a pretty big insult.<\/p>\n<\/div>\n

\n

But still \u2014 if you believe those big indexers are sophisticated investors who are working on your behalf, you want<\/em> them to make choices in corporate governance. To, for instance, vote against acquisitions that might be bad for shareholders, or install problematic members of the board of directors.<\/p>\n<\/div>\n

\n

It seems like if you add up all these mega-IPOs along with the existing tech companies, there\u2019s a lot of AI concentration in the index funds. Should I worry about that, in case AI is a bubble that pops?<\/strong><\/h3>\n<\/p>\n<\/div>\n
\n

Even before SpaceX entered the Nasdaq-100, most of its biggest companies were already AI-heavy \u2014 like Nvidia, Apple, Microsoft, Amazon, Google parent Alphabet, Broadcom, and Meta.<\/p>\n<\/div>\n

\n

One of the biggest criticisms Malkiel hears about index funds is that the market is extremely concentrated, so that 10 companies are worth more than 30 percent of it. But he doesn\u2019t view that as an argument against index funds. \u201cThe market\u2019s always been concentrated,\u201d he says.<\/p>\n<\/div>\n

\n

\u201cWe\u2019ve overhyped every technological change in history,\u201d Malkiel adds. Railroads were overhyped, and so was the internet in the \u201990s, and doubtless we are overhyping AI right now. That\u2019s not a reason to be scared of index funds. \u201cYou\u2019ve got to remember that it\u2019s a very small minority of stocks that are responsible for all the return in the market,\u201d Malkiel says. \u201cThat\u2019s why you shouldn\u2019t be terribly worried.\u201d<\/p>\n<\/div>\n

\n

What else are people worried about?<\/h3>\n<\/p>\n<\/div>\n
\n

SpaceX isn\u2019t getting fast-tracked by the S&P 500<\/a>, another major index with its own governance rules. That may create significant differences in returns<\/a> between index funds tracking the S&P 500 and the Nasdaq-100. (I, for one, look forward to seeing how that plays out.)<\/p>\n<\/div>\n

\n

I suspect that most of the growth in SpaceX\u2019s value has already been realized \u2014 which is why we have a megacap IPO in the first place, so that all the private investors can cash out \u2014 but as with Tesla, SpaceX is a meme stock<\/a> with a sizable interest from retail investors. That decouples its performance from its fundamentals, effectively making it difficult to predict how the stock will actually do.<\/p>\n<\/div>\n

\n

Does SpaceX\u2019s size and inclusion suggest people should simply buy SpaceX stock directly?<\/strong><\/h3>\n<\/p>\n<\/div>\n
\n

No, says Malkiel. \u201cIf I were buying individual stocks, I would think twice about buying SpaceX, which is tremendously overhyped,\u201d he tells me. But people wouldn\u2019t be better off by avoiding an index fund in order to avoid SpaceX.<\/p>\n<\/div>\n

\n

Over time, the market has produced a return of about 10 percent a year. But the majority of companies aren\u2019t responsible for that return, Malkiel says. Only 4 percent of stocks give that rate of return, and everything else underperforms. If you own an index fund, you will definitely own a bunch of the stocks that lose money, but you\u2019ll also own that crucial 4 percent. \u201cWe know experts can\u2019t determine which ones are going to be good,\u201d he says. \u201cThe point is, we don\u2019t know which ones are going to be the best and which ones are going to fail.\u201d<\/p>\n<\/div>\n

\n

Besides, if you have an index fund with SpaceX in it, and SpaceX loses value, the fund rebalances with fewer SpaceX shares, since SpaceX is proportionately less of the overall market. Lots of companies, including those that are in index funds, go bankrupt every year. The focus isn\u2019t on losses \u2014 it\u2019s about gains.<\/p>\n<\/div>\n

\n

Are there other SpaceX schemes I should be aware of?<\/strong><\/h3>\n<\/p>\n<\/div>\n
\n

SpaceX president Gwynne Shotwell donated shares of the company<\/a> to Trump Accounts, which are investment accounts for children. The president said the donation was worth $325 million<\/a>. That is perhaps more alarming than the index funds, because it ties SpaceX very closely to political power.<\/p>\n<\/div>\n

\n

Let\u2019s say I want to avoid owning SpaceX shares at all. How can I do that?<\/strong><\/h3>\n<\/p>\n<\/div>\n
\n

Besides preferentially investing in the S&P 500 index funds, you might also choose to invest in environmental, social, and governance funds. They generally have higher fees than index funds and don\u2019t perform as well, but if not having SpaceX in your portfolio is a high priority, that might be a way to avoid it \u2014 since Musk\u2019s control of SpaceX means the company flunks the \u201cG\u201d part of the requirement. (It may also flunk the \u201cE\u201d part, environment, thanks to the pollution from rockets and AI.) Different ESG funds have different criteria, but someone trying to avoid SpaceX because of Musk might end up with Tesla in their ESG fund \u2014 for its electric vehicles, Malkiel says.<\/p>\n<\/div>\n

Follow topics and authors<\/strong> from this story to see more like this in your personalized homepage feed and to receive email updates.<\/span><\/p>\n