16.26%

2.14%

26.89%

1.82%

TABLE 17.2 Annual Returns on S&P 500 Stocks, 1950–2021

The overall pattern is that stocks as a group have provided a high rate of return over extended periods of time,

but this return comes with risks. The market value of individual companies can rise and fall substantially, both

over short time periods and over the long run. During extended periods of time like the 1970s or the first

decade of the 2000s, the overall stock market return can be quite modest. The stock market can sometimes fall

sharply, as it did in 2008.

The bottom line on investing in stocks is that the rate of return over time will be high, but the risks are also

high, especially in the short run. Liquidity is also high since one can sell stock in publicly held companies

readily for spendable money.

Mutual Funds

Buying stocks or bonds issued by a single company is always somewhat risky. An individual firm may find
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