Diversification is a crucial strategy for any healthy portfolio, but too many investors fail to sufficiently spread out their holdings. In my three years as a certified financial planner, I've seen scores of portfolios, and the international markets are invariably underrepresented.

Like their domestic counterparts, few actively managed international mutual funds outperform their respective index. Dodge & Cox International Stock Fund (FUND:DODFX), a Motley Fool Champion Funds choice, is a rare exception. From its May 2001 inception through Dec. 31, 2005, this stellar performer has reaped an average annual total return of 14.29%. (Wait, weren't we in a bear market during that period?) For comparison purposes, the EAFE index, which tracks the international market, plodded along at a more pedestrian 6.7% return.

While past performance may not be replicated, other factors also separate Dodge & Cox International Stock from the pack. It sports an infinitesimally small expense ratio of 0.7% and a correspondingly low portfolio turnover, both of which bode well for its investors.

While The Motley Fool has several market-beating newsletters that tout individual stocks, mutual funds may prove a better choice for investors in the international arena. Only a limited number of international stocks trade as American Depository Receipts (ADRs), giving them the same reporting regulations as domestic stocks. In the case of this particular international fund, paying a small fee for professional investing experience seems like a smart idea.

Dodge & Cox International Stock has both familiar and unfamiliar names in its portfolio. While its leading position, French health-care firm Sanofi-Synthelabo, is virtually unknown, other large holdings such as News Corp. (NYSE:NWS-A), Mitsubishi (NYSE:MTU), and Honda (NYSE:HMC) may be more familiar. Better yet, 13% of the Dodge & Cox International Stock fund consists of emerging-market companies, offering investors a safer way to dip a toe into this volatile, thinly traded segment.

Though many might find it easier to invest in domestic companies, investors should still aim to allocate a portion of their savings to foreign equities. (The Fool's recent International Report offers several great suggestions.) As Sir John Templeton once noted, "The only investors who shouldn't diversify are those who are right 100% of the time."

The Dodge & Cox International Fund has delivered a return of 74% since it was recommended by our Motley Fool Champion Funds investment service, beating its respective index by almost 16 percentage points. Discover advisor Shannon Zimmerman's full list of outstanding funds with a free 30-day guest pass.

Fool contributor Buz Livingston, CFP, likes to kayak in the Gulf of Mexico and believes most investors will benefit from professional advice. He owns DODFX. The Fool has a disclosure policy.