There's a lot of criticism levelled at the CAPM, including significant methodological challenges (measuring the market portfolio, etc.), but the basic intuition underlying it is sound.
It's what is taught, but I wouldn't say it's entirely accurate though unless the market is fully 'efficient', which we know it's not, or at least not all the time.
The risk free rate of return is reduced because people want to leverage short term cash flows. A 99% chance of gaining 5% is not necessarily worth a 1% chance of losing 5%. EX: Collage tuition is paid before teachers salary's are paid, so collages want somewhere to stuff money for a weeks, but losing money is vastly worse than some minor gains.
If you model the stock market by say buying evenly from all stocks and selling in 50 years repeat. Then some outliers like dell at IPO going up 500x more than makes up for losses. But, you can still lose a lot of money over say 5 or even 20 years and people can't necessarily wait 50 years.