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Finance Glossary

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Prudent Man Rule


A concept that applies to fiduciary responsibility. A fiduciary was required to invest funds entrusted to it in a manner that was consistent with how a "prudent" person would invest. The rule arose in Massachusetts and courts that interpreted it gradually accorded to it the meaning that the only "prudent" investment were in bonds. Equity was considered a totally imprudent investment. Most states no longer apply this rule, instead applying the "prudent investor" standard.