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how to understand expenses matter relative to investment type for mutual funds?
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the net return reported to you (as a percentage) by a mutual fund is the gross return minus the expense ratio.  so, if the gross return is x% and the expense ratio is y%, your account will show a return of (x-y)%.  be aware that x could be negative too. so, with y = 1, if x = 10 (as you might get from a stock fund if you believe historical averages will continue), then the net return is 9% and you have lost (y/x) times 100% = 10% of the gross return. if x = 8 (as you might get from a bond fund if you believe historical averages will continue), then the net return is 7% and you have lost (y/x) times 100% = 12.5% of the gross return. and so on and so forth.  the numbers used are merely examples of the returns that have been obtained historically, though it is worth emphasizing that 10% is an average return, averaged over many decades, from investments in stocks, and to believe that one will get a 10% return year after year is to mislead oneself very badly. i think the point of the illustrations is that expense ratios are important, and should matter a lot to you, but that their impact is proportionately somewhat less if the gross return  is high, but very significant if the gross return is low, as  in money-market funds.  in fact, some money market funds which  found that x < y have even foregone charging the expense ratio  fee so as to maintain a fixed $1 per share price.  personally,  i would need a lot of persuading to invest in even a stock fund with 1% expense ratio.
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