For many investors, I’m sure it feels as if your life-preserver sprung an irreparable leak last year as the bond market imploded.

Bonds have almost always been synonymous with the “safe” part of a balanced portfolio, and yet, their prices have been on an almost relentless decline for the past year or so. With Total Bond Market Index (VBTLX) coming off its worst calendar year since its 1986 inception—dropping 13% in 2022—“What should I do with my bond funds?” is an all-too-common question.

My short answer is to “Be patient.”

I’ll explain why bond investors should be patient.

But first, as you probably know, I’m a big believer in the idea that investors should understand what they own and why. So, to fully answer this question of why one should be patient with their bond investments, we need to start with the nuts-and-bolts of bonds and bond markets. I’ve got a lot to say on this topic, so I’m going to split the coverage into several parts over the coming weeks.

Today, I’ll cover bond basics to set the stage for further exploration. In future articles I’ll discuss the trade-offs to consider when picking a bond fund, the self-healing nature of bonds and more. In the end, I’ll apply all of these lessons to Vanguard’s bond funds—but there’s a lot of ground to cover first, so let’s get going.

The one thing to know: A bond is a contract specifying how much you’ll be paid, and for how long. So, when you buy a bond, you know exactly what your return will be.

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