Yet, despite constant urging from the pros, large numbers of Canadians have not taken advantage of the foreign-content rules. Just 12 per cent of investors had the maximum foreign content, according to an Ipsos-Reid poll commissioned last fall by Royal Bank of Canada. The average foreign holding in an RRSP portfolio was 9.9 per cent.

"Canadians are not taking full advantage of the opportunities afforded to them," says Paul Butler, senior manager at Toronto-based Royal Mutual Funds Inc.

Canada represents about 2 per cent of global equity markets. "By limiting yourself to Canada, you are giving up on 98 per cent of the world's opportunities," says Mr. Butler, adding that holding some foreign assets in an RRSP portfolio will increase overall returns and lower volatility.

Given the recent market turbulence, you might be reluctant to increase your foreign assets. "But now is a good time to invest abroad because it's very unusual for equities to perform badly for so long," says Gavin Graham, director of investments at Toronto-based GGOF Guardian Group of Funds Ltd. "Valuations are a lot more attractive. It's a good time to be buying."

As well, the weak Canadian dollar will work to your advantage, Mr. Graham says. Based on recent experience, it has improved returns by a couple of percentage points because foreign assets are worth more when converted back into Canadian dollars, he says.

So where should you allocate your foreign content this year? While the world's biggest markets, such as the United States and Europe, should always form the core of your foreign holdings, investors who want a little more bang for their buck should consider other areas expected to experience the strongest growth this year.

The key is to lock into equity markets that are anticipating a global economic rebound, says Chris Jenkins, portfolio manager of the AGF Global Companies Fund and director at London-based Rothschild Asset Management Ltd. "Typically, you make about half of your returns in the first year of an economic recovery. This is the time to be invested."

Moreover, because Mr. Jenkins believes this economic cycle has all the classic recovery characteristics, he suggests investors should look first to markets that have economic leverage. "The best places are Asia and emerging markets, which are those countries that are most tied to global GDP growth."

Although investors might be scared off by the headline-making turmoil in markets such as Argentina, he contends its woes are well contained. "Outside of Latin America, the fallout has been very limited," he says.

Even more enthusiastic about these markets is Don Coxe, chairman and chief strategist at Chicago-based Harris Investment Management Inc., a unit of Bank of Montreal. "The cornerstone of any investment program for the next five years is emerging markets."

Demographics are one of the key drivers. "They have growing workforces and will be able to benefit from the trend of outsourcing that will accelerate this decade," says Mr. Coxe. He believes the industrialized world will see slow growth, as its population ages, but emerging markets, with younger populations, will add jobs and expand their share of world trade.

"You want to be tied into the developments in East Asia, which will be the most dynamic area in the world economy. It has everything going for it -- a high savings rate, the ability to use technology and wonderful demographics," says Mr. Coxe, who recommends emerging markets or Pacific Rim funds that can ride out the volatility.

Since these markets represent a relatively small portion of world markets, Mr. Jenkins recommends limiting exposure to about 5- to 10-per-cent of your foreign assets. "It's a risky area, so it should always be a small part of your portfolio."

At the same time, the pros suggest investors should stay clear of markets like Japan. "There are a lot of restructuring issues to be sorted out," says Mr. Jenkins. "Japan could well lag, which is unusual in this cycle. It's the anomaly because it won't be there along with Asia."

The second choice, argues Mr. Jenkins, is the market that is leading the recovery.

"America went into recession first, and will come out first," he says, adding that the U.S. economy has bottomed and will benefit from the drop in energy prices and a series of interest-rate cuts.

To be fair, U.S. markets have already come a long way from their lows last September in the wake of the terrorist attacks.

The Standard & Poor's 500 index is up about 25 per cent, while the Nasdaq composite index is up about 45 per cent.

That means investors should not expect too much going forward. "It's probable that the indexes won't be a lot of higher by the end of the year -- maybe 5 per cent," says Mr. Graham, noting that markets have been driven by a resurgence in the once-battered technology sector. "What's led the index up in the last quarter is well ahead of itself."

But there is still money to be made in overlooked sectors such as pharmaceuticals and food and beverages, he says, adding that value-oriented funds that favour these sectors may start to outperform.

As for Europe, Mr. Jenkins and others consider it as equally attractive as the United States. He believes its economic cycle is lagging the United States by about two or three months, rather than the traditional six months. "Europe's economy never went down very far. It should recover quite nicely."

Mr. Graham agrees, saying investors should give the United States and Europe about equal weight. The latter should also benefit from the U.S. recovery. And Canadians could get a bonus if the euro, now worth about 88 cents (U.S.), appreciates in the next year.

"If you believe currency forecasters, the euro should move back to parity with the U.S. dollar," he says.

Yet, some money managers warn that investors should tread carefully this year --and lower their expectations -- as markets may have become too optimistic.

"Stocks will respond less to macroeconomic drivers, such as lower interest rates, and shift more to the price investors are willing to pay for earnings," says John Hock, manager of CI Global Value Fund and chief investment officer at Altrinsic Global Advisors LLC.