Musk Just Lost $113 Billion in Two Days. Here’s the Lesson for One-Stock Retirees
Elon Musk lost about $113 billion in two days after the midterms. Here is what the same swing did to a retiree with 40% of $1 million in one stock, and the trim plan that fits him.
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Elon Musk lost about $113 billion of paper wealth in two days this week, $33.5 billion on Wednesday and $79.7 billion on Thursday, according to the Bloomberg Billionaires Index as reported by Fortune. Tesla and SpaceX together shed about $456 billion of market value between election night and Thursday’s close after Democrats won the House and Senate.
Musk’s fortune rides on two companies he runs. The household version of that problem is a 63-year-old retiree with $1,000,000 on election night: $400,000 in one stock he bought years ago that ran up, $600,000 in an S&P 500 index fund, and a plan to withdraw 4%, or $40,000 a year. If his stock had followed Tesla’s path this week, he was down about $72,000 by Thursday’s close, 7.2% of the $1,000,000 he started the week with, and 1.8 years of withdrawals gone in two sessions.
The answer for him: hold through the drop day, then cut the stock to 20% of savings over the coming months, about $171,000 of sales in pieces, with the tax bill in view. Had he already been at 20%, Thursday’s loss would have been $50,000 instead of $72,000.
What the two days cost a one-stock retiree
Closing prices show Tesla fell 3.34% Wednesday and 10.77% Thursday, 13.75% over the two days. The S&P 500 fund rose 1.65% Wednesday and fell 4.41% Thursday, 2.83% over the two days.
On that path, the retiree’s $400,000 stock position was worth about $345,000 at Thursday’s close and his $600,000 index fund about $583,000. Total: about $928,000, a loss of about $72,000. The single stock produced 76.4% of that loss while holding 40% of the money. That is the whole lesson in one line: the size of the position set the damage.
Friday’s bounce helped. Tesla rose 4.23% and the index fund 0.31%. His stock climbed back to about $360,000 (a $15,000 rebound) and the fund to about $585,000, for a total of about $944,000. The loss from election night is now about $56,000, or 5.6% of the $1,000,000 start. Friday recovered $16,000, or 22.8% of Thursday’s hole. He is still down 1.4 years of withdrawals, and a 4% draw on the Friday balance is $37,776, which is $2,224 less than the $40,000 he planned.
How much a smaller position would have saved
Option 1: hold the 40% position and do nothing. He sits at about $944,000. The stock is now 38.1% of his savings, so another two days like Wednesday and Thursday would cost about $66,000. This fits a reader who has a pension covering all spending and will not touch the portfolio for a decade.
Option 2: sell the whole stock position at Thursday’s close. That locks in the $55,000 stock loss at the low and misses Friday’s $15,000 rebound in the stock, while triggering the full tax bill in a single year. It fits nobody reading this calmly.
Option 3: move everything into the index fund. An all-index $1,000,000 lost about $28,000 by Thursday and $25,000 by Friday, which is $30,000 less than his actual Friday loss. The cost is giving up any further rebound in the stock and realizing the entire gain at once.
Option 4: trim to 20% in pieces, with withdrawals coming from the stock first. A 20% position would have lost about $50,000 Thursday instead of $72,000, saving $22,000, and only $40,000 as of Friday. This is the call for this retiree, because he is withdrawing. A withdrawal taken right after a drop sells shares at the low and cannot be undone, and a 40% single-stock position puts twice as much money in the line of fire as a 20% one.
Run the numbers on your own account
- Take your total savings at Friday’s close. For him, about $944,000.
- Multiply by your ceiling to get the target position. The formula is savings times 20%. For him, $189,000. The 20% figure is a judgment: it is the level at which this week’s loss would have been $50,000 rather than $72,000.
- Subtract the target from the stock’s current value to get what to sell. For him, $360,000 minus $189,000, or about $171,000.
- Divide by the number of sales. Four pieces of about $43,000 each, one per quarter, spreads the price risk and splits the taxable gain across two tax years.
- Route your regular withdrawal from the stock first. His $37,776 draw taken from the stock position does most of one piece on its own.
Proceeds he does not spend go into the index fund.
The tax side of trimming a long-held winner
Where the stock sits decides the bill. In an IRA or 401(k), trimming is free of tax, and the retiree can sell the full $171,000 in one order if he wants. In a taxable account, shares held more than a year are taxed as long-term gains, and the cost basis sets the taxable amount. Selling in four pieces across two calendar years keeps each year’s reported gain smaller, which can matter for the taxable share of Social Security and for Medicare premiums later. The exact dollar cost depends on his basis and bracket.
Where the plan is weak
Two days plus one bounce is a short record. At Thursday’s close Tesla sat at about 86% of its election-night value and SpaceX at about 87%; Friday’s bounce lifted Tesla to 89.9%, and CFRA’s Keith Snyder called the selloff a knee-jerk reaction, noting Trump still backs Musk and holds a veto. The stock needs an 11.2% rise from Friday’s close to get back to election night, and if it does, every share trimmed on the way was sold too early. Trimming after past scares would have given up the gains that built the $400,000 position in the first place.
The advice does not fit a reader whose Social Security and pension cover all spending, with no withdrawals planned for a decade. That reader can hold a bigger share because sequence risk, selling into a drop to pay bills, does not apply.
Musk’s loss is paper wealth in companies he controls. Snyder’s line, “the nail that sticks out gets hammered first,” describes a political risk specific to Musk. The retiree’s risk is simpler: a 4% withdrawal from a portfolio that can lose 7.2% in two days.
The bottom line
This retiree should trim his one stock to 20% of savings, about $171,000 of sales in four pieces, with his regular withdrawals coming out of that position first. The deciding number is $72,000: what two days took from a 40% position, against $50,000 at 20%. If he had no withdrawals planned for a decade, or the shares sat in an IRA, he could hold more or sell faster. Selling it all on a drop day is the costly move: Friday alone gave back $16,000.
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I've been writing about stocks and personal finance for 20+ years. I believe all great companies are tech companies in the long run, and I invest accordingly.
