This thread is confusing me. My AA is 70% Vanguard intermediate bond funds and 30% Vanguard stock index funds. That allows me to sleep at night after 2001 and 2008. I was a 50/50 guy before then. I know if I hold an individual bond to maturity, market fluctuations do not matter. As such I thought that over the average duration of the bonds within a fund, the loss of principal is recaptured. So if interest rates go up, and if the average duration is say 5 years, I would recapture the capital loss by the end of those 5 years. Is that wrong?