- Upcoming IPOs for companies like SpaceX and Anthropic have some retirees worried.
- Experts overall agree that these IPOs may have limited immediate impact on 401(k)s.
- The Nasdaq 100 and Russell 1000 are expected to include SpaceX relatively soon after going public.
Retirees may have questions about huge, soon-to-be public companies like SpaceX, Anthropic, and OpenAI coming to their retirement accounts. But despite all the attention these initial public offerings are getting, the first lesson for most people with retirement accounts and index funds is simple: these new stocks are unlikely to make a big, immediate difference in their retirement accounts.
That's because most retirement accounts are built around mutual funds and ETFs that track broad indexes, and those indexes don't usually snap up a new company at its full market value the moment it goes public. Instead, they often rely on "free float" — the shares actually available to public investors — and weight new stocks gradually.
"IPOs don't meaningfully move retirement portfolios right away," said Rodney Comegys, chief information officer and head of global equity at Vanguard Capital Management. "Due to float-adjusted indexing, even mega IPOs will enter broad indexes at very small weights, so the near-term impact on 401(k)s is limited."
The Nasdaq 100 and Russell 1000 are expected to include these giants relatively soon after they go public. SpaceX CEO Elon Musk has reportedly pushed indexes to allow SpaceX to trade within days, anticipating a strong performance. The S&P 500 is a holdout, blocking SpaceX for at least 12 months after declining to amend proposed rule changes that would have sped its entry to the benchmark index.
Some prominent financial experts have called SpaceX's targeted valuation of $1.8 trillion too high. Morningstar valued the aerospace manufacturer at $780 billion, citing revenue gaps and AI risks, while "Dean of Valuation" and NYU professor Aswath Damodaran put it at $1.3 trillion.
For holders of retirement funds that will soon allow SpaceX to begin trading, this uncertainty could mean greater risk and volatility.
Some financial advisors told Business Insider that retirees often don't know what's in their 401(k)s and are thus unlikely to reduce their tech exposure. Still, the consensus is not to worry much in the short term, especially since the number of shares available to the public will be limited at first until more stock is sold.
U.S. households aged 65 or older made up the largest age cohort with zero retirement savings, as of the 2022 Survey of Consumer Finances, meaning these IPOs will affect many older Americans the least.
Of course, many of these funds counter big moves in large-cap companies via diversification, holding stable assets like bonds to offset big swings in the stock market.
Mikel Van Cleve, advice director of retirement and complex planning at USAA, told Business Insider that while diversification retains the strength of index investing, portfolio exposures shift over time, which may prompt investors to adjust their risk tolerance.
"From a behavioral finance standpoint, the challenge is that many investors associate index funds with being broadly diversified and inherently conservative, without always recognizing how index composition can evolve over time," Van Cleve said. "During periods of excitement around AI and innovation, that can contribute to overconfidence and elevated return expectations, while periods of volatility can trigger fear-based reactions or reactive decision-making."
Marcus Sturdivant Sr., of The ABC Squared, a Registered Investment Advisory firm, told Business Insider that retirees may be shielded from the impact of having SpaceX in their 401(k)s because the stock won't be included in the S&P 500.
"I think if it had been included in [the index], retirees would have been screwed," he said. "But there are going to be plenty of retirees who actually want this stock in spite of the 95 to 100 times earnings, just because they know Tesla. I can definitely see retirees not particularly minding.
More specifically, he thinks those with years before retirement may not mind SpaceX exposure, but those who plan on cashing in their 401(k)s soon will likely be more worried about short-term volatility.
"If you're about to retire, you probably don't want it there, but if you've got the horizon, it's fine," he added.
Are you buying SpaceX stock? Are you an older American with thoughts about how upcoming IPOs may impact your portfolio? Reach out to this reporter at nsheidlower@businessinsider.com.
The post The mega-IPO wave led by SpaceX and Anthropic has retirees worried about their finances. Their advisors say otherwise. appeared first on Business Insider
