Hi,
On July 7, SpaceX joined the Nasdaq-100, and every index fund that tracks it is contractually required to buy the stock, all at once, whether you chose it or not. It’s an unusual event, and the internet is full of people saying it may wreck your retirement. So let’s be straight with you about the money.
Did July 7 itself cost you money?
- Not much. SpaceX entered the index at well under 1% of a Nasdaq-100 fund, so even a sharp move in that one stock changes your total balance by a fraction of a percent
- In the short term it may even nudge your fund up, since all that forced buying pushes the price higher for a few days
- Anyone telling you this single event will gut your 401(k) is selling fear. It likely won’t
So what is the real risk?
The event isn’t the danger. It’s the warning light. It exposes how much of your retirement may be riding on a handful of tech names, because that is exactly what a Nasdaq-100 fund is. And when a real downturn comes, concentration is what hurts:
- A tech-heavy fund fell about a third in 2022
- In 2008 it lost close to half from top to bottom
- On a $500,000 balance, that is a drop to roughly $335,000 in a 2022-style year, or near $250,000 in a 2008-style one
Who tends to feel a drop like that most:
- Retirees drawing income from these funds – selling shares during a drop to cover living expenses turns a paper loss into a permanent one
- Anyone one to three years from retirement – little time to recover if the timing goes against you
- 401(k)s heavily weighted to QQQ or the Nasdaq-100 – the more concentrated you are, the harder a correction hits
- Big-tech-heavy portfolios – a downturn takes the exact names you are counting on
The people who come through a drop like that intact are the ones who saw it coming: they knew their timeline and planned around it. That is not luck. That is planning. How you invest is between you and your financial advisor, and we don’t give investment advice. What we do is make sure the other half of the picture, the tax side, is handled before it becomes a problem.
Because the tax side and the investment side of your life usually sit with different professionals who never talk to each other, so no one plans the tax impact of an investment move until it lands on a return. That’s exactly where things slip through the cracks.
That’s why we work in coordination with your financial advisor – our tax team making sure every investment move is handled right on the tax side. We also have an experienced fiduciary Certified Financial Planner that can assure your plan matches your goals. Here’s exactly what we can do:
- A year-round strategy – built around your income, business, and goals, and kept current as life changes
- Year-round proactive planning – ongoing moves, including capital gains timing and Roth conversion analysis, to cut what you owe instead of scrambling once a year
- Annual review – so your tax plan stays aligned with your portfolio as the markets and the tax laws shift
- Personal and business tax returns – prepared based on that plan, by the same team
Reply to this email by Monday next week and we’ll set up a free 15 minute session with our tax team. Bring your most recent tax return and a recent investment statement or two – so we can show you where your tax risks and opportunities are, not generalities.
Sincerely,
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com