With Facebook (NASDAQ:FB) going public on May 17 and actively trading on May 18, should you put Facebook into your 401(k)? Facebook has a market cap of $104 billion making it the 22nd most valuable company. In comparison to Apple, Apple’s market cap is $495 billion, making it the world’s most valuable company. Google has a market cap of $195 billion and Microsoft has a market cap of $245 billion.
Most 401(k) investors can obtain instant diversification by simply buying the S&P 500 index fund. One would think that they would gain some exposure to Facebook by picking up an S&P 500 index fund. However, Facebook will not be added to the S&P index until the Standard and Poor’s board decides to admit the stock into the index, which would result in another stock getting the boot.
You can also gain some Facebook exposure by buying a broader market fund such as Vanguard Total U.S. Market Index Fund, which will be forced to buy up shares of the social media giant. Before that funds picks up shares of Facebook though, Facebook will have to wait until MSCI admits Facebook into the index which is the index that the Vanguard fund ends up tracking. Many people are suspecting that it could take another month before Facebook shows up in total stock market index funds.
Also keep in mind that only about 15% of the outstanding shares of Facebook have hit the market on the first day of trading. Most of the stock is still privately held and won’t be able to hit the market for another year. Once company insiders start selling their shares, index funds will be scooping up more shares of Facebook.
If you are thinking of adding Facebook shares directly to your IRA, who knows how Facebook’s stock will perform. In its first day of trading, the stock traded from $42 to $38 before rebounding and tumbling against in late trading for a final price of $38.23. I expect Facebook to experience some wild swings like Linked In making it a gamble for retirement accounts. Linked In ha traded in a range of $55-120 this past year with a current market price of $99. That’s a volatile stock. I would rather stick to some steady dividend-paying stocks, which have performed well in this market.