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).
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