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Why you probably don't own Tesla stock in your retirement account

Tesla (TSLA) stock is on fire.

The stock climbed another 20% to $940 per share just after market open on Tuesday, rising by $160 per share and adding more than $32 billion to Tesla’s market capitalization.

On Monday, shares of Tesla had surged nearly 20%, representing the largest one-day gain since 2013, to close at a then-record of $780 each.

The powerful rally puts shares of Tesla up by about 124% for 2020 through intraday trading Tuesday, better than the returns of any member of the S&P 500 for 2020 so far, and it’s not even a member of this benchmark index.

Tesla is a big name with a $164 billion dollar market cap — that’s more valuable than Ford and GM combined. But if you’re a passive index investor or limited to basic funds in your 401k, you likely have zero exposure to Tesla. In fact, many of the biggest, most popular ETFs — like the SPY or IVV that track the S&P 500, don’t own a single share of Tesla.

Why? The S&P 500 itself does not count Tesla as one of its components. Though the company delivered more than 360,000 cars last year and has more than 20 Wall Street analysts covering it, it’s missing one key metric that could get it included in the S&P 500: consistent profits.

S&P Dow Jones Indices require the a component’s sum of the most recent four consecutive quarters’ Generally Accepted Accounting Principles (GAAP) earnings to be positive, as should the most recent quarter.

Tesla posted a surprise profit in October 2019, leading to this recent stock surge, but the company has never posted a profitable year.

Tesla Inc CEO Elon Musk speaks at an opening ceremony for Tesla China-made Model Y program in Shanghai, China January 7, 2020. REUTERS/Aly Song

Tom Lydon, CEO of ETF Trends, says there are 2300 ETFs in the marketplace and that Tesla is in just 124. And even within those ETFs, the percentage of Tesla isn’t very high. “If you like Tesla and the concept and what it means and the progressiveness of the stock and the fact that autonomous vehicles and robotics are going to be our future, buying a technology ETF, a conventional technology sector fund, isn't going to cut it,” Lydon told The Final Round on Yahoo Finance.

Tesla is a controversial stock and Elon Musk is an unconventional CEO. The Street is divided, as is public opinion on what the company’s future holds. But if you do want to invest in the company without buying it outright, Lydon says the number one ETF that owns Tesla is the Ark Autonomous and Technology ETF (ARKQ), which has 12.5% allocation.

Cathie Wood, who is the portfolio manager — their firm's right here in New York City — has been a huge bull for Tesla, even when it was in the dumps, so she deserves a lot of credit,” Lydon says. “It's actually actively managed so they can buy and sell. But as that's been going up, it becomes a greater percentage of the portfolio; she's been selling it off to kind of equalize it.”

You could also just wait. Tesla may join the S&P 500 in 2020. Oppenheimer’s Colin Rusch raised his price target on Tesla to $612 this week. In his note, he wrote “We believe TSLA is becoming a must-own stock and could benefit from inclusion in additional indexes.”

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