The most common instruments in which people invest are stocks, bonds and forex. However, exposure to these limited investment options raises the risk profile. Portfolio diversification, or holding assets with different characteristics, is an effective way of reducing the risk exposure for the same level of profit potential. Portfolio diversification can be achieved through alternative investments. These are investments made into assets that do not fall under one of the three traditional asset types (cash, stocks and bonds) are called alternative investments. Alternate investments usually require high minimum capital. Moreover, investments in these alternative avenues are less regulated.
The most common alternative investments are Futures, Options, ETFs, Hedge Funds, Real Estate, Private Equity, Pieces of Art and Gold.