Spacex in Your Index Fund, Explained — What a $1.77 Trillion IPO Means for Retirement Savers

Mon, 20 Jul 2026 00:00:00 +0000

SpaceX is on a fast track to join the Nasdaq-100 index, and its blockbuster $1.77 trillion IPO has raised an uncomfortable question for millions of ordinary investors: could Elon Musk’s volatile rocket company destabilize the index funds that form the backbone of your retirement savings?

According to a new report from The Verge, the answer is more nuanced than a simple yes or no — and it has as much to do with how index funds work as it does with SpaceX itself.

The Core Question

Index funds are widely regarded as one of the safest vehicles for long-term investing. Instead of betting on individual companies, they spread risk across an entire market benchmark like the S&P 500 or the Nasdaq-100. But that safety-by-diversification premise is being tested as SpaceX — described by The Verge’s Elizabeth Lopatto as a “giant gamble” and “terribly overpriced” — barrels toward inclusion in the Nasdaq-100.

Can a company valued at $1.77 trillion really be folded into a broad market index without introducing disproportionate risk? And what happens to retirees and passive investors who never asked to own a piece of the rocket business?

What Burton Malkiel Says

The Verge turned to Burton Malkiel, the Princeton economist whose 1973 book A Random Walk Down Wall Street helped popularize the index fund concept. His answer is reassuring — with a caveat.

“If I were buying individual stocks, I would think twice about buying SpaceX, which is tremendously overhyped,” Malkiel told The Verge. But he insists that SpaceX’s addition to the Nasdaq-100 is not a reason to abandon index funds.

The logic is straightforward: index funds are designed to absorb volatile, high-performing stocks. While a single company’s wild price swings can be nerve-wracking for an active stock picker, within a diversified index fund the impact is diluted across hundreds of other holdings.

How Index Funds Work

At their core, index funds aim to match the performance of a specific market benchmark. The “random walk” theory that underpins Malkiel’s philosophy holds that past stock prices don’t predict future movements, making it extremely difficult for even professional fund managers to consistently outperform the overall market.

By buying the whole market rather than picking winners, index funds deliver market-matching returns with low fees — a strategy that has made them the default choice for retirement accounts like 401(k)s and IRAs. Adding SpaceX to the Nasdaq-100 simply means that fund managers tracking the index will automatically buy shares of the company in proportion to its market capitalization.

The Risk Perspective

SpaceX unquestionably carries more risk than the average Nasdaq-100 constituent. The company operates in the capital-intensive aerospace industry, relies heavily on government contracts, and is closely tied to Elon Musk’s often unpredictable leadership. Critics argue its $1.77 trillion valuation is disconnected from fundamentals.

However, Malkiel’s point is that index fund investors already accept that individual components of their portfolio will underperform or overperform. The strength of the approach lies in the aggregate. As long as the overall market trends upward over long time horizons — which it historically has — a single high-flying or high-risk stock in the mix makes little difference to the long-term outcome.

What This Means for Investors

For the average retirement saver, the key takeaway is straightforward: SpaceX’s Nasdaq-100 inclusion is unlikely to meaningfully alter the risk profile of diversified index funds. The same logic that makes index funds resilient in the face of sector downturns and market corrections applies equally to the addition of a single volatile stock.

That said, Malkiel’s personal stance is telling. Even the godfather of index investing would “think twice” before buying SpaceX shares directly. The distinction between individual stock picking and passive index investing remains as important as ever — and the two approaches should not be confused.