prudent man rule

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prudent man rule

n. the requirement that a trustee, investment manager of pension funds, treasurer of a city or county, or any fiduciary (a trusted agent) must only invest funds entrusted to him/her as would a person of prudence, i.e. with discretion, care and intelligence. Thus solid "blue chip" securities, secured loans, federally guaranteed mortgages, treasury certificates, and other conservative investments providing a reasonable return are within the prudent man rule. Some states have statutes which list the types of investments allowable under the rule. Unfortunately, the rule is subjective, and some financial managers have put funds into speculative investments to achieve higher rates of return, which has resulted in bankruptcy and disaster as in the case of Orange County, California (1994). (See: fiduciary, trustee)

References in periodicals archive ?
Furthermore, it develops a useful comparison between the old prudent-person rule and the new prudent-investor standard that is taking its place.
The last investment policy included in this analysis is the use of the prudent-person rule in making investment decisions.
Often the prudent-person rule is supplemented by "legal lists" that specify the maximum percent of assets that can be invested in risky securities.
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