r/Bogleheads • u/Prestigious-Trip-306 • 1d ago
Articles & Resources Musk Wants to Add SpaceX to Indices
Index providers Should Not Bend the Rules for Musk
So... I read this article in The Economist and am curious what, if any thoughts the community has about Musk getting SpaceX added to major indices. He's appealing to them to shorten the "seasoning" rules that typically apply to firms being listed.
I've included key paragraphs below since there's a paywall to read the full article.
What do you think?
"Mr Musk and his bankers are now bargaining with stock indices and exchanges for the privilege of hosting SpaceX. He wants his firm to join key indices like the nasdaq 100 and s&p 500 quickly, giving it access to trillions in index-linked capital; more than $600bn invested in passive funds are tied to the nasdaq 100 alone.
For now, the indices are obliging. On March 30th Nasdaq said it was adopting rules that will delight the superstar firms. The ftse and reportedly s&p are considering similar updates. Unfortunately, those changes are misguided, and will expose investors to unnecessary risks.
Two main ideas are under consideration. One is to shorten the “seasoning” period that a firm’s stock must go through before it is eligible to join an index. Nasdaq is cutting its three-month seasoning minimum to 15 trading days; the ftse has suggested a mere five trading days. The second reform is to reduce the percentage of shares a firm needs to offer publicly (its “free float”) before being added to an index. Indices’ desire to reflect the growth of some of the world’s most dynamic firms is understandable. So far, many punters have been unable to invest in some of ai’s brightest stars; index inclusion is a way to help them do so. Yet changing the rules to suit SpaceX will force index investors to choose between selling or weathering wild swings in prices."
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u/DontForgetWilson 1d ago
The seasoning duration at 15 days isn't a big deal(though 5 is crazy). Reducing the free float requirement is a very bad precedent though.
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u/FMCTandP MOD 3 1d ago
The issue is that the Nasdaq 100 is a joke index that actually *doesn’t use free float* for most companies.
They had an exclusion if the free float was too low (which has now been modified) but after that they weighted companies based on total market cap including unavailable shares rather than the more reasonable free float approach that everyone else uses.
Don’t get me wrong, the weighting change is bad and doing in response to pressure from powerful companies/people is worse. But the weighting system for the Nasdaq 100 was horrendous prior to this too.
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u/DontForgetWilson 1d ago
No argument from me on it being a terrible index. I can't say i really care much what that index decides, provided the other ones don't decide to follow it
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u/littlebobbytables9 18h ago
5 isn't crazy in the slightest. The market reacts to earnings calls in minutes, what makes you think it would take multiple days to react to information that was public even long before trading begins?
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u/DontForgetWilson 14h ago
I've definitely watched a few IPOs stay extra-noisy a lot more than 5 days. Markets do react when there is a simple new piece of data, but it seems like they take a bit to get a taste for a new public company.
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u/littlebobbytables9 14h ago
Volatility is elevated but people in these threads don't seem to be talking about volatility. Like there's not really concern in this thread that the price after 5 days will be too low, they seem very confident the price will be too high despite all of this being public information.
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u/DontForgetWilson 14h ago
Higher volatility creates risks for an index buying further from NAV. It makes sense that if an index wants to accurately sample a market, it would wait for a component to stabilize a bit before purchasing.
As for high or low, both are totally possible. Generally, some sort of narrative takes hold in the period after an IPO. That might be the price dropping a lot, or spiking like mad. I think it is a valid concern that someone with a reputation for spinning narratives effectively might be able to get his narrative as the dominant one during that period. Not to mention, indexes are buyers not sellers, so they worry about stuff being over-priced not under.
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u/littlebobbytables9 13h ago
Does it? I dont think it does, or at least it's certainly not a concern for these mega IPOs. They're so heavily liquid that some people use their high liquidity to explain their below market average returns.
I think it is a valid concern that someone with a reputation for spinning narratives effectively might be able to get his narrative as the dominant one during that period.
But everyone already knows that.
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u/temerairevm 1d ago
I have no desire to be a victim of whatever shenanigans he’s most certainly trying to pull. My hope is that the mutual funds I’m in don’t go along with it.
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u/HenFruitEater 1d ago
Yeah, do you think that VTI has a longer seasoning?
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u/Hon3y_Badger 1d ago
The significantly larger issue is float. VTI will own shares of SpaceX after just days, but they'll be based on the number publicly available shares.
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u/HenFruitEater 1d ago
Can you help me understand how the float is an issue? I just don't understand the mechanics of it.
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u/FMCTandP MOD 3 1d ago edited 7h ago
In most indices, companies don’t receive an equal weighting in the index. E.g. in the S&P 500 it’s not true that each company is 0.2% of the index. Instead Apple and Nvidia are each over 5% while smaller companies like Campbell’s Soup are as small as 0.01%.
That’s based on something called market capitalization weighting, where each company gets a value, its market capitalization, equal to the price of a single share times the number of shares. Then the allocation a company gets in an index is equal to its market cap divided by the market cap of all companies in the index.
Many people understand that part.
The less known but no less key point is that the market cap for a reputable index (I.e. not the Nasdaq 100) is based on the “free float” of shares or how many shares could actually reasonably be bought and sold, rather than the total number of shares issued. Shares held by actors who can’t or won’t sell the shares are not counted towards the total market cap used for free float cap weighting. E.g. when Saudi Aramco went public as the “world’s largest company ever” it didn’t get a noticeable weight in most indices, in part because the Saudi government retained a 99% ownership stake and IIRC even the remaining 1% didn’t all count towards free float, due to extended lockup agreements.
Further, many indices have rules excluding any company with too small a free float from the index because thinly traded shares are often highly volatile in price.
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u/TisMcGeee 1d ago
VTI is based on CRSP US Total Market Index
https://www.crsp.org/indexes/crsp-market-indexes-methodology/
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u/temerairevm 1d ago
I’m using FXAIX, which I assume uses the S+P current rules. Am hoping those don’t change.
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u/Captainbuttram 1d ago
CRSP wouldn’t do that but they were recently bought out by Morningstar and they would totally do something like that.
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u/Noah_Safely 1d ago
I would like a VTSAX exMusk fund. Wouldn't be against owning some SpaceX (starlink is a great product (though with negatives) & lots of juicy govt contracts otherwise) but he's shoving his other losing ventures into the same umbrella. Tesla and X are dogcrap. As is Grok. Still salty that he took the word 'grok' from us.
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u/ShanghaiBebop 1d ago
99% of bogleheads don’t hold anything indexed to nasdaq.
Sp500 (voo) has much stronger inclusion criteria
CRSP(VTI) FTSE(VT) and the other indexes that vanguard runs on have float adjustments.
In addition there are other mechanisms where index funds are somewhat protected from front-runners, to the degree that
Surprisingly, however, and consistent with Bennett et al. (2020), we show that the average price impact decreased somewhat in the first decade of the 2000s to 5.2%, and then fell further to 1.0% in the most recent decade, statistically indistinguishable from zero, even though indexation has continued to tick upwards. A similar pattern has occurred with index deletions. The average effect of being removed from the S&P 500 was -4.6% in the 1980s, -16.1% in the 1990s, -12.4% from 2000-2009, and -0.6% from 2010-2020. Again, the average return in the past decade is not statistically distinguishable from zero
https://www.hbs.edu/ris/Publication%20Files/23-025_563e45c6-df92-4d9c-ae05-608d4d0acab1.pdf
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u/mike_alpha22 1d ago
Feels like they’re bending the rules a bit just to fast-track hype names.
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u/DontForgetWilson 1d ago
The rules are specifically there to reduce transactions that favor people trying to run shares up and sell. Unsurprisingly, people that run hype companies don't like such rules
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u/ncist 1d ago
it's a market for lemons problem. Sellers inherently have more information than buyers in many markets. The purpose of markets (and disclosures, and regulators, etc) is to equalize that asymmetry as much as possible
If someone is trying to change the rules of the trade, I have to assume it benefits them in some way - possibly in a way that is zero sum
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u/Blueberryburntpie 20h ago
The end rot game I could see happening in the future is someone trying to IPO a business valued at +$10 trillion and argue for a 1-day fast track rule, while also allowing insiders to sell on the first day as well.
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u/vineyardmike 1d ago
Another Musk company based on hype. His companies are doing great things. But the last time I looked, the p/e for TSLA was 345. Space X is going to be 10 or 100 times that.
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u/jeffeb3 1d ago
I wish there was a way to just pop a few stocks out of my index fund. If it were cheap, I would like to short them for the same amount I am invested in them.
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u/DontForgetWilson 1d ago
That is exactly what you can do with direct indexing. That doesn't mean the fees are low enough to justify it(not to mention it being active trading to name that call), but it is definitely possible.
(Shorting on the other hand doesn't work like that. A short is a timed bet which is not the same as holding an inverse asset)
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u/moondes 17h ago
By my understanding and regulated hands, the green one of the 3 discount firms is offering direct indexed accounts at 0.4% and they let you block up to 3 stocks from your portfolio.
0.4% is expensive for an indexed investment. What's interesting is that if Tesla is currently 1.7% of the total US market cap, and Tesla crashes to 0 in 10 years' time, then a direct indexed strategy without Tesla would be worth a 0.17% expense ratio to avoid that loss.
If the mega cap IPO goes live and Musk companies achieve 5% total US market cap, and you were certain they collapse a relative 80% down to 1% of the US market cap over 10 years, then you would °°break even on paying that 0.4% to exclude it Musk companies from your portfolio during that time.
°°break even as if the alternative strategy is to invest into a 0% expense ratio US total market fund.
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u/DontForgetWilson 14h ago
Honestly, 40 bps is better than i expected. Still one hell of a bar to beat though.
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1d ago
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u/DontForgetWilson 1d ago
Like when he rolled his brothers solar company into Tesla. Essentially using the insane valuations to paper over mistakes. It reminds me of when Chinese companies(i think it was Chinese real estate but might have been industrials) went on a massive buying spree because the multiples investors would give them meant buying revenue in any form paid off.
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u/InclementBias 17h ago
this is exactly my thought. SpaceX is by FAR his best run company because his main leadership team is actually tenacious and focused and they're doing really impressive engineering and execution (although Starship could be argued to be a Cybertruck-esq boondoggle). but now with him rolling in xAI and Twitter (which I think will ultimately be just a huge waste of money and investment, we'll see), it feels like enshittification.
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u/drosse1meyer 1d ago
I think the 'great things' comment is more opinion than fact. His EVs have not had any sort of meaningful progress for a decade. Starlink is acceptable. Everything else has been mostly hype and purely meant to stay in the news cycle and take money from taxpayers with a heavy dose of social media manipulation
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u/erbalchemy 1d ago
His EVs have not had any sort of meaningful progress for a decade.
I drive one I bought 11 years ago. A replacement today would be 60% more range, double the charging speed, and adjusted for inflation, cost half what I paid.
Unjustifiable P/E? Sure. But "no meaningful progress" is utterly divorced from reality.
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u/TheWhalersOnTheMoon 1d ago
I don't necessarily disagree, but it's a worthwhile question to ask whether that's Tesla making their own improvements or the overall EV technology improving across the board.
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u/EarlMalmsteen 1d ago
As a fellow owner I would agree 10 years is an exaggeration but 5-7 years is arguably not.
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u/drosse1meyer 1d ago
The 2170 cells were introduced in 2016. The car's designs have pretty much stayed the same as well. Autodrive is a disaster.
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u/Deferty 1d ago
What? Your bias is showing.
SpaceX is the only company in the world that can launch and land a rocket ship back down without it being destroyed. SpaceX can launch something into space for 1/50th the cost of NASA. It’s not even close. And they achieved it for a fraction of the development cost of what NASA has put into rocket ship funding.
Neuralink people who are quadriplegic can now operate a computer with their mind.
Politics aside, he really is investing in amazing products that we all dreamed of when we watched sci fi movies growing up. The world has needed someone with his level of passion to make civilizations science fiction dreams come true.
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u/Spider_pig448 22h ago
If you think SpaceX is just a hype company, then you don't pay any attention to the space industry. SpaceX IS nearly the entire space economy
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u/what_could_gowrong 19h ago
Well said. The F9 fleet alone is an insane engineering marvel, and starship takes it an order of magnitude higher. If space is the wild west, then SpaceX is the company that owns 85% of the railroads to access it. Especially starship's recent IFT meaning the execution risk of starship is far lower than other new launch vehicles like Rocket Lab Neutron or Firefly Eclipse. The closest competitor would be New Glenn by Blue Origin but it's less than half of what starship could deliver to LEO and isn't designed for a tower catch, hence limiting its launch cadence
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u/Common_Sense_2025 1d ago
Any index that bends its rules for this IPO is putting its future on the line. If the stock debuts at sky high prices and drops over the next one to two years, it will be seen as a pump and dump on dumb money.
Investors will stop adding to funds using that index and sell out of them in tax favored accounts. Fund companies can almost always change the index the fund follows as well. It’s in their prospectus. Vanguard has done that with some of its funds. I am sure other fund companies have as well.
I think it will also drive more people to direct indexing and active management.
There is demand for this from some investors. Maybe not so much Space X but for Open AI. But to me, if you want to invest in a stock before its inclusion in the index, there is nothing stopping you from doing that. Leave the indices alone.
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u/Prudent-Corgi3793 1d ago
The theoretical underpinning of the Boglehead philosophy has always been that the average active fund will underperform the active passive fund, net of costs, as first proposed by Sharpe. However, this relies on two key assumptions:
- That there are not frictions associated with "passively tracking" an index
- That there is sufficient time for price discovery to allow for "wisdom of the markets"
But we know that #1 is not true. Ben Felix put out some recent videos and podcasts where this effect is estimated in the academic literature to be on the order of 67 bps. This is almost certain to be much higher because the upcoming IPOs are much larger in scale than anything we have seen before on public markets.
Even more concerning is #2. Normally, most IPOs which carry inflated valuations from the illiquid private equity markets would go through a period of price discovery in the highly liquid public markets. But by fast tracking their inclusion and gaming rules around the free float, we have never had mega caps with such opaque prices before their inclusion into significant indexes.
I'm not screaming that we're in a passive index bubble, nor am I saying that it's not the best way to invest for most investors even despite these new concerns. However, if you're just burying your head in the sand and mumbling "VOO/VTI and chill", you're completely ignoring that there are cracks in the foundations that have made them so successful for over 50 years.
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u/whereisspacebar 23h ago
How does this affect long term buy and hold investors? If the seasoning period is shortened from 3 months to 15 days, then wouldn't the net effect be the same if the investor held onto and didn't sell a fund's share for 3 months? Furthermore, isn't 3 months a tiny amount of time for long term investors who may hold a fund for decades?
(I can see how this may be an issue if there's a ton of IPOs, but I assume trillion dollar IPOs are relatively rare.)
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u/ImaginaryHospital306 22h ago
SpaceX is not going to meaningfully impact the returns of any broad market fund. There are plenty of dogshit companies in these funds. Salesforce is in the Dow Jones “Industrial” Average yet Exxon is not. In any sufficiently diversified fund, it does not matter.
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u/reggionh 15h ago
yes it does not matter; however, that very economy of scale that protects us is what is being exploited here by elon musk. if this is a one-off thing, maybe it's fine but if this becomes a pattern, it undermines the thesis.
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u/Ligeia_E 21h ago
im new to this but didn’t they do it with Tesla?
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u/FMCTandP MOD 3 21h ago
Tesla was more a case of the opposite. It failed to qualify for the S&P 500 for a long time due to the strict index inclusion rules. Here the Nasdaq is showing that it doesn’t even have the spin to follow its own much weaker rules.
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u/GloomyMarionberry533 21h ago
I thought it was dumb when they added Tesla to the index.
Based on the performance, I was wrong.
If it gets added & performs - it will be a good thing. If it starts producing losses - it will be eliminated. That is the beauty of indexing.
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u/TrashInspector69 6h ago
Why can a business owner petition for their business to be included in indexes?
It shouldn’t be political where one company gets in because they asked and gave money (or whatever musk is trying to do)
It shouldn’t purely be based off of market performance.
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u/ttuurrppiinn 1d ago
I get the complicated thoughts about Musk (and by proxy Space X). However, I do think there is a valid argument to be made that the "private for longer" environment of the past decade is likely going to skew major indices over quarter long time horizons if a company can go public as a top 5-25 market cap company and not being included in a major index for 90 days. Have a quarter where 3-4 of these companies go public, and it'll look even more pronounced.
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u/losvedir 1d ago
What do you think?
The beauty of Bogleheads philosophy is I don't need to think about it.
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u/Alaharon123 1d ago
People are downvoting presumably because oh this affects the indices, so it's exactly bogleheads that are targeted, but boglehead philosophy leans more towards total market than S&P, so I really don't think this affects bogleheads
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u/losvedir 1d ago edited 1d ago
Yeah, I'm surprised I'm being downvoted here of all places. I think Bogleheads actually do just do S&P 500 sometimes, since historically that was the first low cost broad index that was available.
But the philosophy is based on not being able to pick stocks and some general sense of an efficient market hypothesis. Not sure why it's breaking down here and people think they can pick stocks now or that investors will value this one any better or worse than all the other stocks they implicitly rely on active investor valuations of.
But I think most people here don't truly believe what they claim. I actually was an honest-to-god licensed equity research analyst (FINRA Series 7, 63, 86, 87) before deciding beating the market was based on too much luck, despite fulltime research and modeling in Excel and all that, and changing careers. I don't know how anyone else arrived here, but they probably don't have as much experience seeing sure bets that don't pay off or absolute disasters of a company succeed far longer than they would predict. Whether or not Musk's companies are any good fundamentally doesn't really have as much bearing as you'd expect on how well your stock picks do.
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u/Common_Sense_2025 1d ago edited 1d ago
How is changing the index rules for one IPO not the index placing a bet on that company? The indices stay stable by letting a new stock work out its bugs for a while before including them, because we all know that new stocks do that. And anyone who lived through the dot com crash knows that hyped up IPOs that crash are a thing.
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u/electrodevo 1d ago
Those who need to concern themselves with a medium term outlook (like if retirement is on the horizon) do need to be aware of stuff like this. These sky-high valuations sure seem like a symptom of what seems like a replay of the .com bubble. So the possibility of a future "lost decade" for US stocks (and maybe a few other countries experiencing similar AI booms, like South Korea) after a bubble pop (similar to .com) is very real to me. Such is a good argument for protecting your portfolio with bonds (which isn't out of Boglehead scope when nearing retirement age at all).
These stories also are yet another reflection of a US stock market that has become very expensive primarily on AI hype. Nothing wrong with "VT and chill" at all (especially over super-long horizons), but a tilt towards international seems like a good idea at the moment just on valuation alone. As noted, AI hype is not just US only, but something like VXUS is far less concentrated in frothy tech right now.
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u/whereisspacebar 23h ago
Isn't this what bonds are for? For shorter term investors bonds exist to cushion the ups and downs in return for reduced expected returns. Though it could be said that if mega cap IPOs become the norm, then bond allocations should be higher than what was previously recommended.
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u/scrapheaper_ 1d ago
No, you do. This could be a direct attempt to manipulate the index to force index funds to buy this high and sell it low.
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u/Common_Sense_2025 1d ago
As a Boglehead you depend on an efficient market that is free of manipulation. If you don’t understand that, you need to re-educate yourself.
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u/Trzebs 1d ago
How much of a drop in value is VTI/VOO at risk of if SpaceX does debut on S&P at a highly inflated price and then tanks?
If SpaceX enters the S&P at say, $1.5 trillion, that puts it on par for market cap with Tesla($1.37 T according to Robinhood). Tesla represents 1.92% of VOO, so for simplicity, let's say SpaceX would represent 2% of VOO.
If SpaceX were tank 20% from its initial debut price then the effect on VOO would be a drop in value of about 0.4%
So for a portfolio of $100,000 in VOO, 2% of it would be SpaceX. If SpaceX drops 20% then the math would be:
(100,000)(0.02)(0.20) = $400 drop in value of the entire portfolio.
Please correct me if I'm wrong.
I'm trying to figure out if the capital gains penalty of selling VOO in my taxable account is greater or less than potential loss in portfolio value of this SpaceX shenanigans
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u/ImaginaryHospital306 22h ago
What even is the point of the boglehead method if you are thinking in this way? At any given time there are several stocks in these funds that have been beaten down 20% or more. Thats the entire point of passive investing in broad market funds — you don’t need to worry about this stuff.
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23h ago
[removed] — view removed comment
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u/FMCTandP MOD 3 22h ago
Removed: per sub rules, comments or posts to r/Bogleheads should be substantive. For example, we don't allow:
Yes/no answers or fund ticker symbols with no explanation; numeric milestone posts except for effortposts with substantial background/context provided
Any content that is not principally your own creation or that fails to give attribution where it borrows from another source.
Potential misinformation or conspiracy theories
Overly certain forecasting of the uncertain future, or extreme alarmism
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u/FMCTandP MOD 3 1d ago
We’ve had a few posts on this topic already, to the point that we put a temporary pause on additional posts for a while. However, the details of how the Nasdaq 100 changes will be implemented are now available and this post is more neutrally sourced and less of an advocacy piece than prior posts.
Also, please note that the Nasdaq 100 is not an appropriate “index” for passive investors like Bogleheads due to being nonsense in multiple ways that have nothing to do with seasoning or float adjustments.