I don't know that I am warning people away from domestic funds (after all I do disclose that I favor 60% of my equities being domestic in my own asset allocation.)
The reason to own foreign funds is for the diversification benefit (ie. higher CAGR at the the same level of risk).
Although globalization does increase the correalation of all classes of equities, their remains imperfect coorealation of the US market with the rest of the world. Last year is a great example of a year when the US dramatically outperformed the rest of the developed world (and emerging markets.) All things being equal this means that US stocks are now more expensive relative to non US stocks. 2000-2010 was a period of dramatic outperformance of emerging markets. At sometime in the future, the Non-US Developed world will likely outperform the US, since their stocks are now cheaper.
Long term there is very little difference between the returns of the US and the rest of the developed world.
And back testing tells us that long term by owning a significant slice of international equities, we would have outperformed both the US and the rest of the world with our blended portfolio.
As to the future, its anyone's guess.... I certainly have no clue. But I'm a big believer in diversification. That's one of my own biases.
Alexi
I think you're mixing up a couple of different concepts to maybe warn people away from domestic (read US) funds as a source of diversification. I wouldn't call US total market funds international funds, what I would say is that the US is a huge economy with every single type of industry under the sun represented in the companies within the US total market. Those companies also do a great deal of their business overseas and therefore have their performance influenced by the economies of countries overseas all the while being mitigated by the fact that they do business with all sorts of different countries and regions. Gone are the days where US companies did business solely in the US (if those days even really ever existed.
The real question you have to answer is that is there a benefit to diversifying internationally? What does a portfolio gain if it does so? Why do I have to have my portfolio in proportion to the global equity balance?
*edit to remove my snark*