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   Prudent Man Rule
   















 

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Prudent Man Rule

A reference to a rule first articulated in the case of Harvard College versus Amory. The Supreme Court of Massachusetts stated in 1830 that all that can be required of a trustee is that he conduct himself faithfully and exercise sound discretion and observe how men of prudence, discretion and intelligence manage their own affairs-not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of the capital to be invested. A standard of prudence in investment policy emphasizes how prudent men invest for 'income and safety of principal with a view to the permanent disposition of their funds.' Later Court decisions have applied the Prudent Man Rule to individual investments selected by a trustee for the investment of trust funds: a good portfolio performance does not excuse a single bad decision. This principal has been modified somewhat by the Prudent Expert Rule of ERISA. See also Prudent Expert Rule of ERISA.

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