Your Survival Guy wants you to be a Prudent Man. Become familiar with him and understand what it means to be one.

Are you exercising “prudence, discretion, and intelligence” to manage your affairs? That’s how the court explained its decision in Harvard College v. Amory, the court case that made the Prudent Man rule a precedent in 1830. Steve Lydenberg of the Kennedy School of Government explained the case in 2012, writing:

The courts and regulators in the United States have applied the language of reasonableness to financial matters and fiduciary issues over the years. In the
seminal Harvard College v. Amory ruling on the duties of fiduciaries in 1830, the courts instructed trustees “to 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.” 5

Trustees are instructed to observe the prudent behavior of others and to distinguish speculation, which runs contrary to the fiduciary duty of care, from “the permanent disposition” of funds—that is, something akin to what we might call today long-term investments or preservation of capital.

In 1974, the Prudent Man rule was codified by the Employee Retirement Income Security Act (ERISA). The relevant section reads:

Section 404: the fiduciary shall discharge his duties with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and by diversifying the investments of the plan so as to minimize the risk of large losses unless under the circumstances it is clearly prudent not to do so.

Action Line: “Prudence and diligence” are words you don’t hear often on the squawk box investment TV shows, telling you to “buy, buy, buy!” or “sell, sell, sell!” Manage your affairs like a prudent man, and when you want help, so you can begin to focus on your retirement life, email me at ejsmith@yoursurvivalguy.com.

Originally posted on Your Survival Guy.