Definition
The term vanilla strategy refers to an approach to investment decisions that is plain and simple. Vanilla strategies might also be described as conservative, since they are a back to basics approach to investing.
Explanation
A vanilla strategy is an approach to investing that is fundamentally sound, conservative, and follows well-established investment principles. While the term "plain vanilla" might appear to ridicule this approach, many of the businesses that adopt this strategy perform well.
Investors adopting this approach are also rewarded too. For example, an individual may set aside money each year to fund a child's college education or leverage automatic payroll deductions to fund a retirement account such as a 401(k). Individuals can also take a disciplined approach to prepaying their mortgage by directing a relatively small amount of additional funds towards the principal of the loan each month. All of these approaches would be considered vanilla strategies, since they are very simple ways for an individual to invest their money.
Related Terms
tactical asset allocation, strategic asset allocation, momentum strategy, balanced investment strategy, Halloween strategy
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