Investors can get trimmed by hedge funds

— -- Q: What are hedge funds, how do they work and can you track their performance? Who manages them and who can invest in them?

A: Hedge funds have become one of the investment buzzwords of the 2000s.

But they sound more exotic than they are. Like mutual funds, hedge funds are private pools of money that own different investments with the goal of getting a large return. Hedge funds are different, though, from mutual funds. For one thing, they're secretive, and their managers aren't required to tell regulators much about their operations. Second, one hedge fund can invest in anything, from stocks to weather futures to commodities and currencies.

As a tradeoff for their light regulation, hedge funds are required to only accept "accredited investors." These are institutional and individual investors with deep pockets. They presumably are rich enough to be able to absorb a significant loss and knowledgeable enough to understand the risks of investing in a hedge fund. There are many tests to determine who is an accredited investor. You can read them here.

If you're not an accredited investor, and can't invest in a hedge fund, I wouldn't get too upset. A vast number of hedge funds are poor performers. And if poor performance isn't bad enough, most charge exorbitant fees.

You're not missing anything. Stick with low-cost mutual funds and exchange-traded funds (ETFs), and you'll most likely be better off than you would be investing with some hedge fund managed by a supposed genius who turns out to be mortal. There's no shortage of hotshot hedge fund managers who have lost a bundle of their investors' cash.

If you want to learn more about hedge funds, the Securities and Exchange Commission has an excellent description here.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.