If you're like most people, your RRSP is probably overloaded with Canadian funds. It's time to look abroad.

It’s that season again – time to peek into the bank account and see if you can scrape together enough cash to make an RRSP contribution. Assuming the Christmas bills didn’t wipe out your finances and that you have some money available, what should you do with it? My advice: change course.

For most people, inertia is the hand that guides their RRSP investments. If something is working (or even if it isn’t) let it be. Get the money in, claim the tax deduction, and move on.

Over the past four years, that probably worked just fine for most folks. The Canadian market went on its best run in decades. Anyone with significant positions in Canadian stocks or equity mutual funds should have averaged returns of at least 10% a year over that period. In fact, most Canadian equity funds generated annual gains of between 15% and 20% over that period and some did even better.

I doubt we’ll see those kinds of results over the next four years, however. There are a couple of reasons why I am concerned.

First, income trusts, which became a full part of the S&P/TSX Composite Index last March, were expected to provide greater diversification and more buoyancy. Instead, they’ve become a drag. The Capped Income Trust Index ended 2006 down 10.9% for the year and is off another 1.2% so far in 2007 (to the close of trading on Jan. 25). Eventually, trusts will disappear as a significant component of the TSX but in the meantime they are acting as a brake on any advances and creating additional uncertainty.

Second, there is the index’s heavy concentration on resource stocks. Energy and materials, combined with financials, were the sectors that drove the TSX during its great bull run. Barring another oil crisis that drives crude prices back over US$70 there does not appear to be much upside in resources in the short term.

I suspect that most people who take the time to carefully examine their RRSP portfolios will find they are top-heavy in Canadian stocks in terms of market-value weighting. Even if you didn’t add any money since 2003, a $10,000 investment in a Canadian equity fund held at that time is probably worth anywhere from $15,000 to $20,000 today.

In the meantime, the value of assets in U.S. and foreign securities may have increased only marginally or even declined, due in part to the big jump in the value of the loonie over that period. That’s why a change in course is probably indicated for most people. If you don’t have a good global or international equity fund in your portfolio, it’s time to take off the blinkers.

My choice for an international fund (one that invests mainly outside North America) is the Mawer World Investment Fund. It has been a first-quartile performer in every year but one since 2000, which shows a high degree of consistency. Gerald Cooper-Key, who has run this fund since 1989, brings a conservative management style to bear in making his stock selections, an important consideration for RRSPs.

The fund shows above-average performance for all time frames out to 15 years. It is the number one performer in its category over the past decade with an average annual return of just under 10%. Over the last three years (to Dec. 31) it gained 19.3% annually. The portfolio is well diversified with U.K. stocks the largest holding at 22%. Minimum investment is $5,000.

If you prefer a global fund (one that invests in North America as well), I suggest Saxon World Growth Fund. This hasn’t been the top performer in its category in recent years but preservation of capital in off markets is a major consideration for RRSPs and manager Robert Tattersall does that very well. The fund came through the bear market with only minor bruises, losing 5% in 2000, gained 13% in 2001, and dropping 3% in 2002 – a year when most global equity funds fell 15% - 25% and some recorded drops of more than 30%. Those aren’t the kind of losses anyone wants to see in a retirement plan.

Although it is not in the top tier performance-wise, this fund is a consistent money-maker and its results are better than average over all time frames. Almost 44% of the assets are in the U.S. with another 15.5% in Canada so the fund is heavily weighted to this continent. No other single country accounts for more than 6% of the assets. The minimum investment is $5,000.