Expenses matter relative to investment type
There are three broad investment categories for mutual funds (equity, bond, and money market - in declining order of historical returns). That is an over simplification but adequate to explain the effect of expenses.
- In an equity fund where the historical gross return might be 10%, a 1% expense ratio will consume approximately 10% of the investor's return.
- In a bond fund where the historical gross return might be 8%, a 1% expense ratio will consume approximately 12.5% of the investor's return.
- In a money market fund where the historical gross return might be 5%, a 1% expense ratio will consume approximately 20% of the investor's historical total return.
Thus, an investor must consider a fund's expense ratio as it relates to the type of investments a fund will hold.
I wonder how to understand the relation between the investment category of a mutual fund and its expenses from the above quote?
The three examples actually do not explain the relation to me, because One can shuffle the investment categories with the return rate and expense ratio. The ratio of the expense to the return does not depend on the investment categories, but only on the return rate and the expense ratio. Am I right?