In the eighth grade, I loomed over almost all my classmates at six feet, but I haven't grown an inch since. I still have to remind myself that I'm not tall -- and investors basking in the glow of their 1999 returns could use a similar reminder.

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It's natural for folks holding shares of sagging tech and tech-heavy funds to use their funds' eye-popping 1999 gains as a solace when looking at the losses they've suffered since. The instinct is to figure that even if a fund has lost half its value in the last year, that triple-digit gain in 1999 still leaves you in the black. This might be instinctive and it might be comforting, but in many cases, it's also wrong.

Here's why: Most of the money that flowed into these funds showed up

after

they rocketed north in 1999 and even if you bought shares at the start of that bonny year, the past year's drubbing has left your investment under water.

Ka-Ching?
Funds' losses might not seem to rival 1999's gains, but appearances are deceiving

Source: Morningstar. Returns through April 9.

Consider the case of Fred, the recent tech-fund investor with perfect timing. Fred took his year-end bonus and plunked it into the average tech fund on Jan. 1, 1999. He invested $10,000 just in time to soak up a stunning 136.5% gain, leaving him with $23,650 at the start of 2000. What Fred might not realize is that his fund's ensuing losses -- 33% in 2000 and more than 38% so far this year -- leave him in the red. These tumbles might seem paltry in comparison to his triple-digit gain, but they're percentages lopped off a bigger pool of money, and that adds up. On Tuesday Fred's prescient $10,000 investment would've been whittled down to about 9,777 bucks.

And most investors didn't buy their shares before 1999's boom. After redemptions, a net $188 billion flowed into stock funds in 1999, according to the

Investment Company Institute

, the fund industry's largest trade group. But a record $309 billion gushed in during 2000.

Tech funds, for example, netted about $33 billion in 1999, trouncing the old record of $4.4 billion set in 1995, according to Boston fund consultancy

Financial Research

. But even as they sputtered in 2000, they set a new record, taking in a whopping $44.5 billion.

On Tuesday afternoon, I looked at how a $10,000 investment would have fared in some of 1999's highest flying and hottest selling funds. These are just back-of-envelope figures and these model investments only run through March 1 because that was the latest data I had from

Morningstar

, but they do the job.

A logical place to start is with the top-performing 10 U.S. stock funds in 1999, which rose 285% on average that year and have fallen about 70% on average over the last year, according to Morningstar.

If you'd had the impossibly good foresight to invest $10,000 in an equally weighted portfolio of these 10 once-sizzling funds, that account would've been worth more than $17,000 on March 1, 2001. But if you'd bought the same funds just six months later in 1999 -- still in time to capture big gains -- you would be under water. And if, like most investors, you bought 1999's winners the following year, every dollar you invested would've been worth less than 50 cents on March 1.

TheStreet Recommends

A comparison of the same investment in the

(VFINX) - Get Vanguard 500 Index Inv Report

Vanguard 500 Index fund, which tracks the

S&P 500

, shows the benefits of diversification.

The picture isn't much brighter if we look at how things would have worked out with two of 1999's top-selling tech funds, Kevin Landis'

(TVFQX)

Firsthand Technology Value fund and Mike Lu's

(JAGTX) - Get Janus Henderson Global Tech T Report

Janus Global Technology fund, which closed to new investors on Jan. 14, 2000. In 1999, the funds rose 190.4% and 214%, respectively, and each has lost more than half its value over the past 12 months, according to Morningstar.

If you'd invested $10,000 in their funds during 1999, you still would've been in the black on March 1 of this year. But the majority of the money that came into tech funds showed up in 2000. And if you'd invested on the heels of 1999's gains, you'd be pretty deep in the red.

Beyond tech funds, tech-heavy growth funds also rang up big gains, followed by big losses. Many investors might be assuming that they're still in the black with these funds, but a gander and at their March 31 account statements might tell them otherwise.

A good example might be the

(JAVLX)

Janus Twenty fund, which has more than 60% of its money in tech and telecom stocks. The high-profile fund was the third-best seller in 1999 and closed to new investors on April 16, 1999, but still took in hundreds of millions of dollars from current shareholders, before seeing consistent outflows in the second half of last year. Its popularity, concentration on relatively few stocks and big tech appetite make it an apt proxy for growth funds in many portfolios.

The Twenty gained 64.9% in 1999 and has fallen some 49% over the last year. If we look at how a $10,000 investment in the fund would've fared by March 1, we find that recent losses whittled away 1999's gains. Even if you'd invested that $10,000 at the start of 1999, you'd still be under water on your investment. Again, a comparison with the same investment in the Vanguard 500 Index fund underscores the advantages of diversification.

If you've been reading your account statements, the impermanence of 1999's gains probably isn't a surprise. But judging from my email box, there are a lot folks out there who think they've got gains that aren't actually there. Take it from a once-tall guy who's given to unnecessary ducking when walking into a low-ceilinged room: It's painful to puncture these illusions, but we're better off afterward.

Fund Junkie runs every Monday and Wednesday, as well as occasional dispatches. Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

imcdonald@thestreet.com, but he cannot give specific financial advice.