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. Fiduciary

    1. A person legally appointed and authorized to hold assets in ...
  5. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  6. Trustee

    A person or firm that holds or administers property or assets ...
Related Articles
  1. Estate Planning: 16 Things To Do Before ...
    Retirement

    Estate Planning: 16 Things To Do Before ...

  2. Special Trusts For Special Needs
    Personal Finance

    Special Trusts For Special Needs

  3. Can You Trust Your Trustee?
    Home & Auto

    Can You Trust Your Trustee?

  4. Getting Started On Your Estate Plan
    Options & Futures

    Getting Started On Your Estate Plan

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center