Passive investors are faced with a choice in benchmarks following SpaceX's addition to many stock indexes. The diverging approaches might not make a huge difference for investors who focus on broad-based investment vehicles that keep costs low.
The Vanguard Total Stock Market ETF tracks an index that includes SpaceX, while giant ETFs tracking the S&P 500 index don't. Investors could be on either side of this, feeling they're missing out on great companies like SpaceX or wanting to avoid overhyped debutantes.
However, recent years have shown that it hasn't made a huge difference in returns. For comparison's sake, consider Vanguard's total-market index ETF versus its S&P 500-tracking ETF. Over the past decade, the S&P 500 ETF has returned an annualized 15.6%, while the total-market index ETF has returned 15.1%.
Investors who are skeptical of IPO hype aren't crazy. Newly listed companies in the U.S. historically have a poor market-adjusted track record in their first couple of years. But IPO vintages vary, and the types of companies going public matter.
SpaceX's sheer size and magnitude might change the calculus, but its limited float will curtail its index impact. The bottom line for passive investors is that they will find themselves in the same stock-picking and market-timing quandaries they had initially set out to avoid.
