SpaceX IPO is coming to your 401(k). Should you be concerned?

SpaceX IPO is coming to your 401(k). Should you be concerned?

Elon Musk's SpaceX (SPAX.PVT) is set to go public on June 12, splashing into the market at a targeted valuation of nearly $1.8 trillion.

If you're investing in a 401(k) for retirement via broad index funds, a sliver of the rocket and satellite company is likely to wind up in your account, even without you buying a single share.

Here's why: Rules to protect passive investors by keeping unprofitable firms with no track record out of the index funds where millions of Americans invest their retirement savings have been eased for the SpaceX IPO.

This opens the door for index fund providers to waive the profitability requirement and allow SpaceX to begin trading on one index in as little as five days.

Already, SpaceX's much-hyped IPO has its skeptics. Morningstar initiated coverage of SpaceX with a fair-value estimate of $780 billion, less than half the roughly $1.8 trillion valuation the company is targeting in its initial public offering. And it's worth noting SpaceX has yet to turn an annual profit.

So should the average retirement saver be worried? Excited?

"Mega IPOs reinforce the value of diversification," said Rodney Comegys, Vanguard Capital Management's chief information officer and head of global equity. "Even the largest IPOs represent a small piece of a diversified portfolio. Diversification ensures investors participate in innovation and growth while reducing reliance on the success or timing of any single company."

The public debut of Elon Musk's rocket and AI company is expected to make history.

The Nasdaq 100 (^NDX) index and the Russell 1000 (^RUI) have changed their rules to accommodate mega IPOs like SpaceX into their flagship indexes within the first few days of trading.

The Russell 1000 could include SpaceX shares around a week following the IPO. The waiting window for the Nasdaq 100 will be roughly 15 trading days for companies large enough to rank among the index's largest members. That could put SpaceX in the Nasdaq 100 sometime in early summer.

The S&P 500 is currently considering a rule change that would allow SpaceX into its portfolio earlier. To join the S&P 500, a company must have traded publicly for at least 12 months and have posted four consecutive quarters of profitability. The rule change being debated now would relax that requirement for megacap stocks, allowing those stocks in after six months of trading.

Once that happens, index funds will buy SpaceX and other IPOs on the horizon, including those of artificial intelligence giants Anthropic (ANTH.PVT) and OpenAI (OPAI.PVT), in order to precisely track the relevant index.