I'm not totally sure what you are saying. I agree that if you buy a bond at a premium over par you won't get your original principle back at maturity. The financial impact is that you get a "return of principle" with your interest payments. The real bottom line is that at maturity you know what cash comes back to you.
As for how long it takes to get your original principle back in the face of rising interest rates, I think that is a different issue. You lose
principle value (NAV) when rates rise. If you hold the fund long enough you get all of your money back. On the other hand, falling interest rates increase your NAV so a capital gain is possible or you could keep taking the higher interest rate and eventually give your capital gain back. So what?
Back to my original statement..... I buy fixed income for a known
income stream and a known
amount of principle at a specified
If you are happy letting your NAV float and not knowing how much it will be worth at any time in the future, funds might be the right thing for you. I personally have found that I can create my own fixed income fund with a better yield then I can get with either Fidelity or Vanguard. Yes, I have transactions costs higher then they do but my management fees are zero!
I am done with this thread. Is anyone ready to bring up variable annuities again? I just got my FIL's checks from redeeming them "early."
Regretably, I am not willing to incur the personal inconvenience that would result by my beating the SOB to death that sold him the annuity. At this point, I can only hope that God will include this in whatever future discussion will eventually happen.