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. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  7. Options & Futures

    Get To Know These Crucial US Options Market Regulations

    How are options regulated in the U.S and which organizations are involved in options market regulations?
  8. Investing Basics

    Are You Investing With A Purpose?

    We all appreciate having a wide variety of investing choices, but a random collection of investments does not make an investing plan.
  9. Active Trading Fundamentals

    20 Rules To Trade More Professionally

    Break free from the pack and join the professional minority with an approach that raises your odds for long term prosperity.
  10. Fundamental Analysis

    Is Apple's Stock Over Valued Or Undervalued?

    Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ...

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center