Prudent Investor Act

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.

BREAKING DOWN '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

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