DEFINITION of ‘Vanilla Strategy’
An approach to investing or to business decision-making that is basic and common. Some investors and businesses excel because they choose an ordinary, vanilla strategy, while others succeed through innovation. In derivatives trading, a vanilla strategy is the use of two different plain vanilla instruments, such as swaps, at the same time.
BREAKING DOWN ‘Vanilla Strategy’
For example, a vanilla strategy for retirement saving might include saving at least 10% of one’s annual income, investing in diversified portfolio of stocks and bonds through tax-advantaged savings accounts like a 401(k) and Roth IRA, and buying a home with a plan to pay off the mortgage before reaching retirement. There is nothing interesting or unique about this strategy – it is “vanilla” because it is ordinary.