The Availability Heuristic: Why Market Crashes Feel More Likely Than They Are

A few months ago, I was sitting across from a coworker at lunch when the conversation drifted toward money. He is smart, earns a good salary, and has been diligently saving for years. But when I mentioned that I hold XEQT in my TFSA and RRSP, he shook his head.

“I can’t do the stock market,” he said. “It always crashes.”

I asked him what he meant. Without hesitating, he rattled off a list: the dot-com bubble, the 2008 financial crisis, the COVID crash in March 2020. He told me his parents lost a chunk of their retirement savings in 2008 and never fully recovered emotionally. He described the COVID crash like he had lived through a war – the circuit breakers, the panic, the headlines screaming about economic collapse.

He painted a vivid, detailed, genuinely terrifying picture of the stock market. And then I asked him a different question.

“Can you name the years when the market just quietly went up?”

He stared at me for a few seconds. “I mean… I guess 2021 was good? And maybe 2017?” Then he trailed off.

Here is the thing: between 2009 and 2019, the global stock market delivered one of the greatest bull runs in history. The S&P 500 alone returned roughly 300% over that decade. If you had invested $10,000 in a diversified global equity fund at the bottom of the 2008 crash, you would have been sitting on more than $40,000 by the end of 2019. And my coworker – a smart, educated person – could not name a single one of those years with any specificity.

He could name three crashes in vivid detail. He could not name ten years of extraordinary gains. And this asymmetry in his memory was not a failure of intelligence. It was a feature of his brain called the availability heuristic, and it is quietly convincing millions of Canadians that the stock market is far more dangerous than it actually is.

1. What Is the Availability Heuristic?

The availability heuristic is a mental shortcut first identified by psychologists Daniel Kahneman and Amos Tversky in 1973. The principle is deceptively simple: your brain judges the probability of an event by how easily you can think of examples of it happening.

If examples come to mind quickly and vividly, your brain concludes the event must be common. If examples are hard to recall, your brain assumes the event is rare.

This works reasonably well in many areas of life. You can easily recall seeing car accidents on the highway, so you judge (correctly) that car accidents are fairly common. You cannot easily recall anyone you know being struck by lightning, so you judge (correctly) that lightning strikes are rare.

But the heuristic breaks down badly in situations where memorability and actual frequency are not correlated. And investing is one of those situations.

How It Works in Plain Terms

Think of your memory as a search engine. When your brain asks “how likely is a stock market crash?”, it runs a search through your memories. The results are ranked not by statistical frequency, but by:

• Emotional intensity – how strongly you felt when the event happened
• Vividness – how dramatic or story-like the event was
• Recency – how recently it occurred
• Personal relevance – whether it affected you or someone you know

A stock market crash scores a perfect 10 on all four criteria. Meanwhile, the years where the market quietly gained 8-12%? They score a zero on every dimension. Nobody tells dramatic stories about the year their portfolio grew steadily by 10%. Those years are invisible to your memory’s search engine, so your brain acts as if they barely happened.

2. Why Crashes Are “Available” and Gains Are Not

The asymmetry between how we remember crashes and how we remember gains is not random. There are specific, identifiable reasons why your brain is flooded with crash memories and starved of gain memories.

a) Media Coverage Is Wildly Asymmetric

Financial media exists to capture your attention, and nothing captures attention like fear. A 30% market decline gets wall-to-wall coverage for weeks – breaking news banners, breathless anchors, countdown clocks to market opens, expert panels debating whether this is “the big one.” Every newspaper, website, and social media feed is saturated with crash coverage.

A year where the market returns 14%? You might see a single year-end summary article buried on page six. There is no breaking news for “Markets Continue Their Boring, Steady Climb.” Nobody interrupts regular programming to announce that your XEQT is up another 0.04% today.

The result: your brain has hundreds of vivid crash-related media memories and almost zero gain-related media memories.

b) Emotional Intensity Creates Stronger Memories

Neuroscience tells us that emotional events create stronger, more durable memories. The amygdala tags emotionally charged experiences for priority storage, and fear is one of the most powerful triggers.

When the market crashed 34% in March 2020, you probably remember exactly where you were. You remember the feeling in your chest, the conversations, checking your portfolio and seeing red.

When the market recovered fully by August 2020 – just five months later – and surged to new all-time highs, you probably do not remember the specific day your portfolio went green again. The recovery was gradual, undramatic, and emotionally muted. Your amygdala did not flag it because there was nothing to fear.

c) Stories from Family and Friends

Some of the most powerful availability heuristic fuel comes from personal stories. Maybe your parents told you about losing money in 2008. Maybe a friend sold everything during COVID panic and told you the harrowing tale. Maybe your uncle has been saying “the market is about to crash” at every family dinner for the last fifteen years.

These stories are vivid, emotional, and personal. They lodge in your memory like shrapnel. And they are almost always stories about losses, because nobody tells dramatic stories at Thanksgiving about the year their index fund returned 11%.

d) Negativity Bias Compounds the Effect

The availability heuristic does not work alone. It is amplified by negativity bias – our tendency to pay more attention to negative information than positive. When these two biases work together, your brain overestimates crash frequency (availability heuristic) and overweights the severity of those crashes (negativity bias), creating a mental model of the stock market that looks far more dangerous than the data supports.

3. The Actual Data: How Often Do Crashes Really Happen?

Now let’s look at what the data actually says. Because when you strip away the emotional memories and media narratives and look at the raw numbers, the picture is very different from what your brain is telling you.

Market Performance by Year (Global Equities, 1950-2025)

Read that table again. The market is positive nearly three out of every four years. Losses worse than 20% – the kind you would actually notice and remember – happen roughly once every 16 to 17 years on average. The catastrophic crashes that dominate your memory represent approximately 3% of all market years.

Major Market Crashes Since 1950

That is six major crashes in 75 years. Six. In that same 75-year period, there were approximately 55 years where the market posted positive returns, dozens of years with returns above 15%, and multiple stretches of five or more consecutive years of gains.

Bull Markets vs. Bear Markets

The market spends roughly 80% of its time going up and only about 20% going down. Bull markets last more than four times as long as bear markets and produce gains that dwarf the losses of the downturns. The boring upward grind is the norm. The dramatic crash is the exception.

But your brain, thanks to the availability heuristic, has it exactly backwards.

4. The Asymmetry Problem

Here is the fundamental problem: you remember the exceptions and forget the rule.

You remember the 2008 crash vividly. Can you remember what the market did in 2013? It returned about 30%. What about 2019? Another 28%. The five-year stretch from 2012 to 2016, when the S&P 500 posted positive returns every single year? Probably not.

In concrete terms: if you invested $10,000 in a diversified global equity portfolio in March 2009 and held through December 2019, you would have had approximately $42,000 to $45,000. If you invested $10,000 during the COVID crash in March 2020 and held through the end of 2021, you would have had roughly $17,000 to $18,000.

These are staggering gains that do not show up when your brain searches for “what does the stock market do?” because they were boring and gradual. Your coworker can describe the 2008 crash in cinematic detail but cannot recall a single year of the decade-long bull run that followed it.

This is the availability heuristic in its purest form: your brain is so saturated with vivid crash memories that it has no room left for the boring, life-changing gains.

5. How the Availability Heuristic Specifically Hurts XEQT Investors

The availability heuristic does not just distort your perception of the market – it drives specific behaviours that cost you real money. Here are the ways I see it hurt Canadian XEQT investors most often.

a) Sitting in Cash, Waiting for “The Crash”

This is the most common and most expensive mistake. You have money to invest. You know you should invest it. But your brain keeps whispering: “A crash is coming. Wait for a better entry point.”

You are not basing this on any fundamental analysis. You are basing it on the fact that you can easily recall past crashes, so your brain concludes the next one must be imminent. Meanwhile, the market continues its boring, undramatic upward climb, and every month you wait is a month of compounding you have permanently lost.

Research from Vanguard and Charles Schwab consistently shows that lump-sum investing beats waiting for a dip approximately 65-70% of the time, precisely because markets spend most of their time going up.

b) Panic Selling During Dips

A routine market correction of 10% happens roughly once a year on average. But when you are living through one, the availability heuristic fills your head with memories of 2008 and COVID, and suddenly a normal pullback feels like the start of the next Great Depression. You sell, the market recovers within weeks, and you eventually buy back in at higher prices.

c) Under-Allocating to Equities

Some investors never panic sell because they never invest enough to panic about. They keep 70% of their portfolio in cash or GICs and put only a small amount into XEQT. They call this “being conservative,” but for a 30-year-old with a 30+ year time horizon, holding mostly cash is not conservative. It is a guaranteed way to lose purchasing power to inflation while missing decades of compounding.

d) Obsessively Checking After Bad News

When a negative headline hits, the availability heuristic sends you straight to your brokerage app. You check not because you plan to act, but because your brain has flagged this event as similar to past crashes. This obsessive checking amplifies your fear, reinforces the bias, and increases the odds of an emotional decision you regret.

6. Real Examples of the Availability Heuristic in Action

These are not hypothetical scenarios. These are patterns I have seen play out with people I know personally and in online investing communities across Canada.

The COVID Seller

A friend of mine sold his entire equity portfolio on March 18, 2020. His reasoning? “This is 2008 all over again.” The availability heuristic had served up his most vivid financial memory and convinced him history was repeating.

The market bottomed on March 23, five days later. By August, it had fully recovered. He sat in cash for six months, watching the recovery without him, and eventually bought back in at higher prices. The availability heuristic cost him roughly 40% of his portfolio value in missed recovery gains.

The Perpetual Waiter

I know someone who graduated from university in 2010 with no debt and a good job. For 16 years, she has been “waiting for a good time to invest.” Every year, a new threat – European debt crisis, China slowdown, COVID, inflation, rate hikes, tariff wars – convinces her to wait a little longer.

She can name every crisis of the last decade and a half. She cannot name the fact that a global equity ETF would have roughly tripled her money over that same period. The availability heuristic has cost her well over $100,000 in foregone compounding gains.

The 2008 Refugee

After 2008, millions of investors swore they would never invest in stocks again. Many kept that promise, moving to GICs and savings accounts.

The decade that followed was one of the greatest bull markets in history. A balanced portfolio returned well over 200%. These investors missed all of it. Some are now approaching retirement with portfolios that are a fraction of what they could have been. The 2008 crash cost them money – but the availability heuristic, by keeping them out for the following decade, cost them far more.

7. How XEQT’s Structure Helps Counteract This Bias

One of the underappreciated benefits of XEQT is that its very design helps protect you from the worst effects of the availability heuristic. Here is how.

a) Global Diversification Dilutes Individual Crash Narratives

XEQT holds over 9,000 stocks across 49 countries. No single country’s crisis represents your entire portfolio. The Japanese market crash of the 1990s, the European debt crisis, the Canadian oil price crash of 2014 – each was devastating for concentrated portfolios but was just one component of XEQT’s global exposure.

b) Automatic Rebalancing Buys the Dip for You

When one region drops, XEQT rebalances toward its target allocations – systematically buying more of whatever has dropped and trimming whatever has risen. The exact opposite of what the availability heuristic wants you to do, handled automatically and unemotionally.

c) Simplicity Reduces Decision Points

Every investment decision is an opportunity for the availability heuristic to interfere. XEQT reduces your decisions to one: buy and hold. No sector to rotate out of, no position to trim, no rebalancing to manage. Fewer decisions mean fewer opportunities for the bias to sabotage you.

d) Dollar-Cost Averaging Smooths the Emotional Ride

When you invest a fixed amount in XEQT on a regular schedule – say, every payday – you buy more units when prices are low and fewer units when prices are high. This mechanical approach removes the availability heuristic from the buying decision entirely. You do not need to assess whether a crash is coming because you are buying regardless.

Over time, dollar-cost averaging also creates a psychological buffer. You start to see dips as opportunities (more units for the same dollar amount) rather than threats. This gradually rewires the availability heuristic by creating positive associations with market downturns.

8. Practical Strategies to Overcome the Availability Heuristic

Understanding the bias is the first step. Here are concrete strategies to prevent it from controlling your investment decisions.

Strategy 1: Automate Everything

Set up automatic contributions to your Wealthsimple account and automatic purchases of XEQT. When the process is automated, the availability heuristic never gets a vote. You invest on the same schedule whether the market is up, down, or sideways.

This is the single most effective defence against every cognitive bias in investing, not just the availability heuristic. Remove the human from the equation and the human biases go with them.

Strategy 2: Stop Consuming Financial News

This is hard advice to follow, but it is important: financial news is availability heuristic fuel. Every dramatic headline, every breaking news alert, every “MARKETS IN TURMOIL” banner is adding vivid, emotional crash-related content to your memory banks. The more you consume, the more biased your mental model of the market becomes.

I am not saying you should be uninformed. I am saying that checking market news daily provides zero actionable benefit for a long-term XEQT investor and significant psychological harm.

Strategy 3: Keep a Market History Cheat Sheet

Write down the following facts and keep them somewhere you will see them during moments of panic:

• The market has been positive in approximately 73% of calendar years since 1950
• The average bull market lasts 5.5 years; the average bear market lasts 1.3 years
• The market spends roughly 80% of its time in bull territory
• Every single crash in history has been followed by a full recovery and new highs
• A $10,000 investment in global equities in 1990 would be worth over $120,000 today

These facts are boring. They do not trigger emotional memories. That is exactly why you need to write them down – because your brain will not store them naturally.

Strategy 4: Zoom Out to 10-20 Year Charts

When the availability heuristic is screaming at you that the market is dangerous, open a chart of any major index over the last 20 years. What you will see is a line that goes from the bottom left to the top right, with some bumps along the way.

The crashes that dominate your memory? On a 20-year chart, they look like dips – temporary, small, and completely overshadowed by the long-term upward trend. This visual perspective is one of the most powerful tools for counteracting the availability heuristic.

Strategy 5: Write Your Investment Plan When You Are Calm

Write your plan when markets are calm and you are thinking clearly. Include what you invest in (XEQT), how much per month, your schedule, what you do during a crash (nothing – or buy more), and when you will sell (only when you need the money). When the next crash comes, pull out the plan. The decision was already made by a calmer, more rational version of you.

Strategy 6: Build Counter-Memories

Actively seek out information about market recoveries and long-term gains. Read about the 2009-2019 bull market. Study the COVID recovery timeline. You are essentially trying to stock your brain’s search engine with positive market memories so that “crash” is no longer the only result it returns.

9. The Ultimate Reframe: Time in Market Beats Timing the Market

The availability heuristic is what makes you try to time the market. It convinces you a crash is always around the corner, so you wait. It convinces you this dip is the start of something catastrophic, so you sell.

The data on market timing is unforgiving:

• A study by J.P. Morgan found that missing just the 10 best days in the S&P 500 over a 20-year period reduced total returns by more than half
• Six of those 10 best days occurred within two weeks of the 10 worst days – if you sold to avoid the bad days, you almost certainly missed the good days too
• Dalbar research consistently shows the average investor earns significantly less than market averages, primarily due to emotionally driven buying and selling

The availability heuristic is at the root of all of this. It creates the urgency to act, provides the (false) evidence that danger is imminent, and makes doing nothing feel irresponsible – when doing nothing is almost always optimal.

When you commit to holding XEQT for 20 or 30 years, individual crashes become irrelevant. They are just temporary dips in a long-term upward trend – exactly what they look like on a zoomed-out chart, and exactly what they do not feel like when you are living through them.

10. The Boring Reality Your Brain Does Not Want You to Accept

Here is the truth the availability heuristic desperately wants to hide from you: investing is boring, and boring is what makes you rich.

The stock market goes up most of the time. Not all of the time – there are genuine downturns, some severe. But the long-term trajectory has been upward for as long as public markets have existed. Every crash has been followed by a recovery. Every bear market has given way to a bull market.

But your brain is not wired to internalize boring, gradual, positive trends. It is wired to remember dramatic, scary exceptions. So you walk around with a mental model dominated by crashes that represent roughly 3% of market history, while the other 97% sits in a dusty corner of your memory.

My coworker at lunch that day had a perfect memory for financial disasters and no memory at all for financial prosperity. The availability heuristic has convinced an entire generation of potential investors that the stock market is a casino, when in reality it is the single most reliable wealth-building tool available to ordinary Canadians.

If you are sitting on cash because you are afraid of the next crash, consider the possibility that your fear is not based on reality. It is based on a cognitive bias that makes dramatic events feel more common than they are. The crashes are real, but they are also rare, temporary, and – for those who stay invested – ultimately irrelevant to long-term outcomes.

The boring, invisible, forgettable years of steady market growth are where wealth is actually built. Your brain just does not want you to know that.