DEFINITION of 'Prudent Investor Rule'

A guideline that requires a fiduciary to invest trust assets as if they were his own. The managing investor should consider the needs of the trust's beneficiaries, the provision of regular income, and the preservation of trust assets and should avoid investments that are excessively risky. The prudent investor rule states that the decision-making process must follow certain guidelines, even if the final result does not satisfy the original intent.

BREAKING DOWN 'Prudent Investor Rule'

A prudent investment will not always turn out to be a good investment, because no one can predict with certainty what will happen with any investment decision. Thus, the rule only applies to the decision-making process; that is, based on the knowledge the fiduciary has at the time, is the investment a good idea? Investing exclusively in penny stocks, for example, would violate the prudent investor rule, because they are known to be risky at the outset.



RELATED TERMS
  1. Prudent Investment

    Generally, any use of financial assets that is suitable for the ...
  2. Authorized Investment

    Dictated by state laws or by trust instruments designed to restrict ...
  3. Prudent-Person Rule

    A legal maxim restricting the discretion in a client's account ...
  4. Fiduciary

    A fiduciary is a person who acts on behalf of another person, ...
  5. Trust Property

    Assets that have been placed into a fiduciary relationship between ...
  6. Bare Trust

    A basic trust in which the beneficiary has the absolute right ...
Related Articles
  1. Managing Wealth

    What's a Trust?

    A trust is a fiduciary relationship in which one party gives another party the right to hold property or assets on behalf of a beneficiary.
  2. Financial Advisor

    Meeting Your Fiduciary Responsibility

    Being a fiduciary comes with a certain level of responsibility. These four steps will reduce your liability when managing other people's money.
  3. Retirement

    How To Set Up A Trust Fund In The U.K.

    A guide to the whys and wherefores of setting up this most versatile of estate-planning instruments in the United Kingdom.
  4. Financial Advisor

    Should You Put Your Faith In A Trust?

    Many institutions want a piece of your portfolio, but trusts can provide a one-stop shop.
  5. Investing

    Unit Investment Trusts Market: 3 Trends in 2016

    Learn more about unit investment trusts (UITs), and discover some of the most common trends in the UIT market to date in the year 2016.
  6. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  7. Financial Advisor

    Irrevocable Trusts: New Trends You Need to Know

    Several improvements and additional provisions have been added to irrevocable trusts in recent years making them considerably more versatile than before.
  8. Managing Wealth

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  9. Managing Wealth

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex; here's what you'll need to discuss with your lawyer.
  10. Financial Advisor

    Passing an IRA to a Trust: The Good and Bad

    Creating a trust is a common estate planning tactic, but naming a beneficiary to an IRA to a trust may have unintended consequences.
RELATED FAQS
  1. What are the keys to setting up a trust fund?

    Setting up a trust to secure your assets for a beneficiary allows you to set the terms under which the beneficiaries are ... Read Answer >>
  2. What is the difference between a revocable trust and a living trust?

    Learn how a revocable trust and living trust are two terms used to describe the same thing and what the key provisions are ... Read Answer >>
  3. What is the difference between revocable and irrevocable intervivos trusts?

    Learn what an inter-vivos trust is, the difference between an irrevocable and a revocable inter-vivos trust, and why it is ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center