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Like I mentioned, it was JUST ANNOUNCED that Tesla would be added to the SP500.
Right now, there’s over $11.2 TRILLION DOLLARS invested in the SP500…and almost HALF of that, at $4.6 TRILLION DOLLARS…is invested within index funds that include the SP500.
That means…if we JUST consider the $4.6 TRILLION DOLLARS sitting within index funds…over $51 BILLION DOLLARS of that is going to have to invest in Tesla Stock so that they properly balance their portfolio based on each companies weight.
That’s the reason WHY – if you haven’t owned Tesla before, but you invest your money in an index fund like I always talk about…by the end of December, over 1% of your portfolio will now be a friendly reminder of Elon Musk.
That’s also why people see this as such a big deal…see, that means that EVERY TIME someone buys an index fund containing the SP500…they’re AUTOMATICALLY investing in Tesla. And that just means a constant, steady stream of money flowing into Tesla stock.
Historically, here’s what happens when a stock is added to an index:
Now, when it was researched, it was found that stocks DO generally see a rise in price once it’s ANNOUNCED they’re going to be added to an index – but ONCE they’re actually added to the index, the pent up demand slows down – the stock price drops – and then it returns it a new “normal.”
This was also confirmed by a study published in the 1990’s, that found that the announcement and inclusion of a stock within the SP500 DID have a measurable effect on the price…short term. Long term, however, it was found that adding a stock to an index has no permanent effect on the price.
In fact, it was studied that a stocks “premium” for being added to an index completely wore off after 2 months, usually returning to the same price before it was ever announced.
And overall, studies have shown that stocks added to an index did NOT see any superior performance and demand over stocks which were NOT traded within an index…
So, given all of this information…like we’re seeing right now…the ANNOUNCEMENT is increasing the stock price, just as studies have shown was going to happen…and, historically, that announcement has a more powerful impact than the actual inclusion itself.
If you’re investing in this specific stock, just be prepared for this to be a wild ride. It’s not uncommon for this one to be up or down 10% in a few days, so understand WHY you bought in and just hold as long as nothing fundamentally changes. If you buy into Tesla, buy with the expectation of holding this for YEARS…and then hang on.
Otherwise, if you’re investing in index funds like I preach nonstop here…well, congrats, just over 1% of your portfolio is now going to be Tesla. This isn’t exactly enough to make waves in your portfolio…BUT, it could have a decent impact long term if it continues to do well.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available.