Investment Management 101

By Tanner Freeman

October 2026

AT TRUST COMPANY OF VERMONT, we pride ourselves on serving multiple generations. From time to time, a family member newly added to the TCV fold will request a “Back to Basics” explanation of just what it is we do. We are always happy to launch into a talk about the wide range of our services and expand on everything from bill paying to estate settlement, but sometimes, the new family member wants to dig deeper into just one of those services: investment management. Perhaps you, our clients, have heard this question at home, and perhaps you’ve thought that you, too, could use a refresher. So, here it is: investment management at TCV in a nutshell.

TCV invests in three main asset classes: money market funds (cash), fixed income securities, and equity securities. All have different functions and risks.

MONEY MARKET FUNDS are considered cash like. Money invested in this vehicle earns interest that gets paid out monthly. The yield (or rate of return) that you will earn is based on short-term funding rates set by the Federal Reserve. If you ever hear in the news that the Federal Reserve held a meeting and raised, lowered or kept rates the same, know that this is the rate they are setting. These rates are considered “floating,” meaning they change frequently and are not set rates. We use this asset class to keep funds that we expect clients to take in the next 6-12 months. There is almost no fluctuation in value and the money market is considered very safe.

FIXED INCOME SECURITIES are loans. An entity (bank, corporation, country) needs money. It issues bonds, you buy those bonds (give the entity cash) and in return, you receive a (usually) fixed interest rate for a period of time. When that period has passed, the issuing entity returns the original amount of money you paid. We are frequent purchasers of U.S. Government debt as it has long been considered the risk-free rate of return. The U.S. has never defaulted (or in layperson’s terms, it has never failed to repay someone who purchased one of its bonds). These bonds are like money market funds in that they pay you interest. The difference is that the interest rate is fixed and cannot be changed over the course of that bond’s life. These are low-risk assets; however, they are not completely free of risk. Once the bond is issued, until the maturity date, the bond’s price can fluctuate with interest rate changes. This is because you can sell bonds to other people. Unlike CDs from banks, bonds can be sold to another investor if you need your cash back before the maturity date. The price of the bond will go up and down, depending on interest rates, in an inverse (or opposite) relationship. If interest rates go up, the price of the bond goes down and vice versa. At Trust Company of Vermont, we buy short maturing bonds (maturing within the next 10 years, although usually we buy 5 years or less). This is mainly because the farther away the maturity date, the more sensitive a bond’s price is to moves in interest rates. If you buy a 1-year bond and a 30-year bond, and interest rates go from 4% to 5%, the 1-year bond’s price is not going to go down very much. The 30-year bond’s price will go down much more. We typically use bonds for clients who know they are going to spend money in the next 1-4 years. This time frame is important as we discuss investing in the stock market.

EQUITY SECURITIES, or stocks, are a claim on future earnings of a publicly traded company. Long-term stock market returns have averaged 9-11%, although in the last 10 years, this figure has been closer to 15%. We use stocks for long-term investing; they have much better returns than bonds but can more volatile. Even though the long-term returns are higher, you can have a year like 2022, when the stock market went down 20%. Where people usually go wrong financially is not when they select stocks that went up 7% while other stocks went up 10%; it is when people sell stocks at bad times. Once you sell stocks when they are down, it is very difficult to know when is a good time to buy. People who did sell during market downturns tend to buy only once the market goes back up, and thus miss out on those gains. When we buy stocks, we want to hold them for a long time knowing there will be ups and downs as time goes by. The most important thing about investing is figuring out what amount of money is appropriate to place in each asset class. The reason we like to keep 1-4 years of what a client typically spends in fixed income is that we don’t always know when the market is going to be good or bad. This way, we don’t have to constantly be right about the stock market, knowing that if we go through a bad period, we have the money in fixed income. It is effectively insurance for your portfolio. If you are still working and don’t require a lot of funds from your assets, you can take more risk (said in another way, you can have more of your assets in the stock market). Typically, the younger you are the higher percentage of your assets are in stocks. As we get older or are in retirement and start to draw from our savings, we should have a smaller percentage of stock. However, everybody’s situation is different. Two people both in retirement can have very different stock percentages depending on the amount of assets they have, how much they spend from their assets, their overall risk tolerance, and other factors.

I hope this provides a good starting point for future discussion of investment management and how we can finetune a client’s portfolio as we get to know the person (and the family) behind the account. If you or your family members have more questions, we are always happy to have a phone call to discuss these topics in more detail.