Final answer:
The stock market offers a potential for high returns over time but with inherent risks, with fluctuations in individual stock values and overall market trends. Dividends once formed a larger part of returns but have decreased since the 1990s, whereas capital gains have typically been higher since the 1980s. The 2000s exhibited stock price fluctuations with minimal growth by the decade's end, and the 2010s showed low dividends with stock price increases.
Step-by-step explanation:
The stock market is known for its potential to provide a high rate of return over long periods, but these returns are accompanied by risks. For instance, the performance of individual stocks can greatly fluctuate, impacting the market value of these companies significantly. These changes can occur over brief spans or may be observed in the long run. Market trends have shown varied results; for instance, in the 1970s and the early 2000s, the stock market offered relatively modest returns, while sharp declines, such as the one in 2008, also characterized its volatility.
When examining the historical performance of stocks, including those represented in the S&P 500 index, the total annual rate of return encompasses both dividends and capital gains. Notably, dividends used to constitute a more significant portion of the return, around 4% in the 1950s to 1980s, but have since decreased to about 1% to 2% post-1990s. Capital gains have generally been higher than dividends since the 1980s. Despite fluctuations, stock prices by the end of the 2000s were similar to where they began the decade, while the 2010s saw continued low dividends with an increase in stock prices.