Final answer:
The average return of the S&P 500 over the past 40 years has included diminished dividends since the 1990s (1%-2%) and periods of substantial capital gains, especially in the 1980s and 1990s. The Total Stock Market Index typically mirrors this performance. Overall, stocks offer high returns but with associated market risks.
Step-by-step explanation:
The average annual rate of return for the S&P 500 over the past 40 years can be understood by examining historical data on dividends and capital gains. Despite fluctuations, the return includes dividends, which have decreased from about 4% in the 1950s-1980s to 1%-2% since the 1990s, and capital gains, which have seen periods of significant growth, particularly in the 1980s and 1990s. It's worth noting that while individual stock prices can vary widely and market corrections can occur, as happened in 2008, stocks in aggregate have provided robust returns over the long term.
In terms of the Total Stock Market Index, the information provided does not give a detailed average return for this index over the last 40 years. However, it generally mirrors the performance of major indices like the S&P 500, with a mix of dividends and capital gains being the primary components of the return.