SpaceX is expected to file for an IPO as soon as this week, targeting a potential $75 billion raise with a June listing. And if you own an S&P 500 index fund, there's a good chance your money will be buying SpaceX shares whether you want it to or not.
Here's what most people don't understand about index funds: they don't get to pick and choose. When a company becomes large enough and meets the S&P 500's listing criteria, index funds tracking that benchmark are required to buy it. That's how passive investing works. And when the company in question is valued at tens of billions of dollars, that creates massive forced buying.
The Index Inclusion Game
According to reports from The Information, SpaceX is planning to allocate more than 20% of IPO shares to individual investors—one of the largest retail allocations ever for a deal this size. That sounds democratic, but the real action happens later.
Once SpaceX goes public and hits the market cap and liquidity thresholds for S&P 500 inclusion, every index fund tracking that benchmark will need to buy shares. We're talking about trillions of dollars in passive investment funds that have no choice but to become SpaceX shareholders at whatever the market price is at that moment.
This is not speculation. We've seen this movie before with Tesla. When Elon Musk's electric car company was added to the S&P 500 in December 2020, index funds had to buy roughly $80 billion worth of Tesla stock in a short window. The stock surged on the announcement and again on the actual inclusion date. Passive investors paid the price—literally.
What This Means for Your Money
If you own VOO, SPY, or any other S&P 500 index fund, you should be aware that you might soon own SpaceX. And you'll be buying it at whatever valuation the market sets after the IPO, not at some reasonable fundamental price.
SpaceX is an impressive company. It dominates commercial space launch, has NASA contracts, and is building Starlink into a legitimate satellite internet business. But impressive doesn't mean the IPO price will be reasonable. The $75 billion target valuation is massive, and if the stock pops on its first day of trading—which IPOs often do—index funds will be buying at an even higher price.
The passive investing boom has created a structural dynamic where index inclusion drives demand regardless of valuation. That's great when you're already holding the stock. It's less great when you're the one forced to buy at the peak.
Should You Do Anything About It?
For most long-term investors, the answer is no. If you're in an S&P 500 fund for the next 20 years, SpaceX's inclusion is just one more event in a long series of index changes. Trying to time your exit and re-entry around individual stock additions is a losing game.
But it's worth understanding the mechanics. Passive investing is often sold as a simple, set-it-and-forget-it strategy. And it is—most of the time. But moments like this reveal that index funds aren't perfectly neutral. They have forced buying and selling based on index rules, and that creates price distortions.
If you're uncomfortable with the idea of your retirement savings buying SpaceX at whatever price index inclusion demands, your options are limited. You could shift to actively managed funds that can choose not to buy overvalued stocks. You could tilt toward equal-weight index funds that don't concentrate as heavily in mega-cap names. Or you could just accept that this is part of the deal with passive investing and stay the course.
Just don't pretend it's not happening.
