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For investors who bought real estate funds over the past few years, their year-end statements have provided a jolt and have created a need for self-evaluation.

The problem is that most people react to having their nerves frazzled without the personal exam, which can be a recipe for disaster.

In the entire equity universe, real estate had the longest string of positive performance, boasting gains for seven consecutive years leading up to 2007. Those profits weren't wiped out by a year in which the average real estate fund lost just less than 14 percent, according to Morningstar Inc. Nearly 12 of those loss points came in the fourth quarter alone. By the time year-end statements started hitting mailboxes, real estate investment trusts (REITs) had dropped nine more points during the first two weeks of 2008.

Studies show that investors head for the door when a drop-off passes the 25 percent mark, and plenty of real estate funds now are there.

The knee-jerk reaction is why $7.1 billion flowed from real estate funds in 2007, marking the first year of net outflows for the category in eight years, according to AMG Data Services.

But the outflows may have been a mistake, not because of any great expectation for a REIT rebound this year, but because they may have damaged investors' asset allocations. This is where the self-assessment comes into play.

Many investors in REITs bought in well after the winning streak started. In 1999, the market was hot and technology and Internet funds were the rage. Real estate funds -- a good diversifier for a portfolio, because they don't move in lock-step with the traditional markets -- were shunned because their returns were ugly compared with the high-fliers.

It wasn't until the bear market was well underway -- in 2002 and 2003, after real estate funds had already gained more than 12 percent annually, while the broad stock market was suffering losses of that size -- that a lot of investors took notice, and threw their money into real estate funds.

Frequently, investors justified the decision by saying they wanted REIT funds as a diversifier, and not just because they were hot.

The market is now testing that thinking, and showing many investors to be liars.

"If you bought real estate for asset-allocation purposes, you might have taken some of your profits off the table during the big years, and you're wondering if you need to buy more now to stay true to your allocation," says Tom Roseen, senior research analyst at Lipper Inc. "If you said you wanted this to diversify your portfolio, but now you want to get out of it, then you're chasing performance, plain and simple."

Worse yet, Roseen notes that fund flows would indicate that investors who are pulling money from REIT funds may be making the same fundamental mistakes again, putting the proceeds from their sales into international and emerging-markets funds, which are now several years into a strong bull run.

That being the case, investors need to ask themselves a question, which is how well they have done in their performance-surfing. An investor who bought the average REIT fund five years ago still has annualized gains of about 16 percent to show for it.

With the real estate bubble bursting and the subprime mortgage crisis and credit crunch looking like they will hold fortunes down for a while, hit-and-run investors could be rewarded in their own way. So long as they can catch a wave and ride it -- getting off before it hits the rocks on the beach -- their nest eggs will continue to grow.

Chuck Jaffe is a senior columnist for MarketWatch. He can be reached at cjaffe@marketwatch.com, or at Box 70, Cohasset, MA 02025-0070.