The 2005 Federal Liberal-NDP Budget removes the foreign content restrictions for RRSPs/RRIFs (currently restricted at 30%). Now Canadians can invest 100% of their retirement savings in whatever country they choose.

The whole push for removing the limit was to expand investment choice and possibly enhance returns. Canada does represent about 3% of the world’s stock markets and about 4% of the world’s bond markets. From a diversification perspective, the foreign content limit actually imposed potentially greater risk on the investor (so its removal is a good thing).

Back in the 1990s, when people were realizing above-average returns in foreign markets, many believed that their higher returns were simply because they were “foreign”. The main reason for the higher non-Canada returns was because of the dropping Canadian dollar (much like the reason for the low foreign return now is because of the increasing Canadian dollar). When investing outside of Canada, people should acknowledge that the true growth potential is really a result of certain countries going through their own “Industrial Revolutions”. Investors should also acknowledge that even though this “growth” is occurring in other nations, the “mother corporation” is sometimes right here at home (or in the U.S.)

Back in 2000, when the Official Opposition proposed increasing the foreign limit to only 50%, the Liberals and NDP called it “selling out Canada to the highest bidder”. What do the Liberals now consider a 100% foreign content limit?

D’Arcy Barker is a Chartered Financial Planner and Registered Employee Benefits Consultant- www.barkermoney.com

E-mail: ReduceYourTaxes@barkermoney.com