The S&P 500 has surged by 27% in the last few months, leading to substantial gains for many Americans in their retirement portfolios.
But according to real estate mogul Grant Cardone, danger could be lurking ahead.
The reason has to do with yield curve inversion, which occurs when short-term bonds have higher yields than long-term bonds. It’s a sign that investors are more pessimistic about the long term, and is often viewed as an indicator of a coming recession.
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“The yield curve has been inverted for +500 days. This has only happened 3 times since 1920: • 1929 • 1974 • 2009,” he posted on X (formerly known as Twitter).
In an interview with Fox Business, Cardone pointed out that, historically, a prolonged inversion of the yield curve does not bode well for investors.
“They were devastating with over 50% pull backs in the S&P 500 with people losing over 50% in their retirement accounts,” he said.
Here’s what this could mean for you.
‘The invisible tax’
Cardone pointed to the $38 trillion sitting in retirement accounts that benefit “trillion-dollar institutions” like State Street and Vanguard.
“People are at risk today and should be told that their retirement accounts are at risk of both a 50% pullback, and the inflation effect, and on top of that Biden’s promise to raise capital gains tax to double what they are today,” he said.
Given the extensive exposure many people have to the stock market through their retirement savings, a 50% crash in the S&P 500 could be devastating.
During the market sell-off in 2022, CBS News reported that 401(k) and IRA plan participants experienced an estimated loss of around $3 trillion.
Cardone also reflected on inflation’s impact on retirement accounts.
“The problem today is we’re not telling these retirees the effect of inflation,” he said, calling this impact on purchasing power an “invisible tax.”
He explained that if someone had $200,000 in their retirement account four years ago, “the invisible tax on that is $50,000 of that $200,000.”
Inflation has been a pressing issue in America. According to data from the Bureau of Labor Statistics, U.S. CPI rose from 258.150 in March 2020 to 312.230 in March 2024, representing a 21% increase over the last four years.
While the Federal Reserve has implemented aggressive interest rate hikes to tame inflation, prices of many necessities remain elevated. For instance, the food index from the CPI has increased by 25% in the last four years. Similarly, the shelter index has risen by 22% during the same period.
Read more: This little-known investment strategy can save you thousands on your taxes
‘Pulled it out of Wall Street’
Given Cardone’s warning of a potential massive stock market pullback and the “invisible tax” impact of inflation on money, investors may be wondering what steps to take.
Cardone’s message is clear — pull your retirement savings out of Wall Street and put them into income-producing real estate.
“I self directed [and] pulled it out of Wall Street to get away from the… potential of a loss,” he said, adding that he’d converted his savings into real estate at no penalty. “When I retire, I get cash flow, not a lump sum.”
Real estate is a well-known hedge against inflation. As the price of raw materials and labor increases, new properties are more expensive to build, driving up the price of existing real estate.
The S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index has surged 50% over the last five years.
Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income.
And according to Cardone, rental income is what you want for retirement.
“Let’s face it, when you’re 65 years old, you don’t need a lump sum. You need cash flow,” he remarked.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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