Prudent Investor Act

AAA

DEFINITION of 'Prudent Investor Act'

A U.S. law that sets the standard of fiduciary duty for those entrusted with the responsibility of managing others' money, such as trustees and estate administrators. It requires that a trustee weigh risk versus reward when making investment decisions, taking into account the income that may be generated by the investment as well as the probable safety of the invested capital.

INVESTOPEDIA EXPLAINS 'Prudent Investor Act'

Although often confused with the Prudent Man Rule, the two differ in four key aspects:


1. Trust accounts are judged on their entire portfolio, rather than whether the investment was prudent at the time of purchase.
2. Diversification is explicitly required under the Prudent Investor Act
3. Suitability is deemed more important than individual investments
4. Fiduciaries are allowed to delegate investment management to qualified third parties

RELATED TERMS
  1. Prudent Investment

    Generally, any use of financial assets that is suitable for the ...
  2. Prudent Investor Rule

    A guideline that requires a fiduciary to invest trust assets ...
  3. Chartered Trust And Estate Planner

    A professional accreditation offered by the American Academy ...
  4. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  5. Fiduciary

    1. A person legally appointed and authorized to hold assets in ...
  6. Trustee

    A person or firm that holds or administers property or assets ...
Related Articles
  1. Retirement

    Estate Planning: 16 Things To Do Before You Die

    Find out what you need to prepare to avoid serious estate planning mistakes.
  2. Personal Finance

    Special Trusts For Special Needs

    If you or someone you love has a disability, these trusts can help ease the cost of care.
  3. Home & Auto

    Can You Trust Your Trustee?

    Ignorance and incompetence can cost you money. Make sure your trustee is up to the task.
  4. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  5. Retirement

    Should You Put Your Faith In A Trust?

    Many institutions want a piece of your portfolio, but trusts can provide a one-stop shop.
  6. Bonds & Fixed Income

    How to Diversify with Muni Bond ETFs

    Thinking of diversifying with bonds? Consider these muni bond ETFs.
  7. Mutual Funds & ETFs

    How To Build A Bond Ladder?

    Bond laddering is a strategy used when building a portfolio: an investor can spread out interest rate risk and create a stream of cash flows for income.
  8. Budgeting

    5 Smart Tips For Raising Financially Literate Kids

    Help your children learn to be financially literate with these strategies. Financial savvy begins with what they learn from their parents.
  9. Fundamental Analysis

    How Investment Risk Is Quantified

    FInancial advisors and wealth management firms use a variety of tools based in Modern portfolio theory to quantify investment risk.
  10. Mutual Funds & ETFs

    Which ETF is the Best Bet: VTI or IWV?

    A look at two quality ETFs that offer diversification, low expense ratios, and exposure to the total market.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center