Don't Want Exposure to SpaceX? Why Investing in These Types of ETFs May Be the Way to Go
Key Points
SpaceX is one of the hottest stocks to own right now, but its valuation is incredibly high.
It will be included in many funds, including those that track the Nasdaq-100.
The S&P 500, however, won't include the space stock anytime soon.
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Space Exploration Technologies (NASDAQ: SPCX) recently went public, and the stock, which also goes by just SpaceX, will soon be added to many index funds. That may not sit well with risk-averse investors who don't want exposure to the extremely expensive stock, which trades at more than 100 times its revenue and which is already among the most valuable companies in the world, despite incurring massive losses.
There's ample incentive to avoid exposure to SpaceX, as the stock may not only prove volatile but also carry significant downside risk given its extremely high valuation. For investors who want to steer clear of SpaceX, funds that track the S&P 500 may be the way to go right now.
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SpaceX isn't getting added to the S&P 500 anytime soon
The Nasdaq loosened rules for adding stocks to the Nasdaq-100 index, and SpaceX is set to be included in there as early as next week. But the S&P 500 isn't bending its rules for SpaceX. Not only will it have to wait at least a year, but it will also need to be profitable -- which is likely to be a considerable barrier for the space company, which incurred $4.3 billion in losses during just the first three months of the year.
Meanwhile, as the company ramps up spending to pursue growth opportunities in space and artificial intelligence, its losses may become much larger in the future. It makes it incredibly unlikely that SpaceX will meet the criteria to be included in the S&P 500, a collection of leading U.S. stocks, anytime soon, regardless of how high its valuation may get.
S&P 500 index funds remain attractive options for long-term investing
The SPDR S&P 500 ETF (NYSEMKT: SPY) is a popular, low-cost option for tracking the S&P 500, with a gross expense ratio of only 0.0945%. It offers investors a simple, no-nonsense way to gain exposure to a wide range of stocks through a single investment. And with the index averaging gains of around 10% per year for decades, it makes for a suitable long-term investment to buy and forget about.
There are also many other funds that track the index and focus on different aspects of it. But by focusing strictly on S&P 500 stocks and funds that track the index, you can ensure you have exposure only to those stocks. And until SpaceX attains consistent profitability, it won't be part of that illustrious group.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
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