1) You can "guarantee" anything you want but the guarantee is only as good as the bank account behind the guarantee. Other than Yahoo posters, everyone knows that. There are many, many bonds out there that "guarantee" returns higher than 5%. Guarantees don't mean anything to investors with any sophistication.
2) A covenant in an investor agreement not to withdraw money under certain circumstances is called a "gate". Gates are really unpopular with people with real money, largely because they are usually conduits and can't match your gate with one of their own. It's hard to get investment with gates ("lock-ups where people can't withdraw their money for 2 years or something are easier but even that wouldn't sell in an indexed investment like you are offering).
3) I've offered somewhat similar plans to Japanese investors when interest rates were reasonable. So if 10 year interest rates are 5%/year, I offer a principal guaranteed product where in 10 years they are guaranteed to do no worse than get their money back. But they might make a ton more than that. The way it works is that I just take 60% of their money and buy a zero and then invest the remaining 40% in my fund, leveraged big. Japanese law at least used to believe that was a completely safe investment (morons).
4) Stock markets don't always go up. If you invested in all 10 of the world's biggest stock markets 100 years ago from today, 4 of them went to 0. Yes, I know that WW I was the war to end all wars and will never happen again.....
Don't take this the wrong way, but the fact that you're asking this on Yahoo Answers suggests that you don't have a regulatory lawyer working for you.
You'd have to be some sort of miracle worker to get a 7-12% return on stick investments. If it was as easy as you seem to think why would anyone invest with you when they could just invest directly in the markets and get the returns?
Running an investment company is a huge amount of work and requires that you comply with a lot of regulations (varying depending on which country you're in).
There used to be plenty of places that guaranteed a 5% annual return (at one point Nationwide Building Society paid about that on some savings products) as a bank or building society you can pay whatever interest you want. Nobody pays that level of interest these days though because the returns aren't there to pay it.
You would have to do better than Warren Buffet to achieve that sort of results, and even he would get into hot water if he guaranteed any kind of result. Some years you can get a return of more than 7? %, but other years you will lose more than 7? %.
The only way to make that kind of money would be to buy at the very bottom of a bear market and sell at the very top of a bull market. If you could do that you would make well over 7 ? %, but no one is that lucky or that good at timing the market.
You could, at least theoretically, manage to achieve the results you cited, but it would be impossible to guarantee it.
Instead of giving a guarantee, you might call it an "objective" rather than a guarantee. That would be legal and keep you out of trouble.
To make it marketable, you would have to spell out to some extent how you anticipate achieving those results.
It will never work. Number one, it reeks of a Ponzi scheme, only the inability to withdraw in difficult times would allow you plenty of time to skip the country. I know your intentions are honest, but people will think it's a scam. Second, you are looking back from 2014 to 2009 and seeing nothing but an upward stock market. I've seen many credible projections saying we are in for 10 years of 1-2% growth in stock prices; that is far from 7%. And the fact you want to use index funds means you won't have an opportunity to pick better than average stocks should the overall market do poorly; and even if you were able to pick stocks, if the market is only up 2%, to get 5% would make you a genius.
Would it be possible/legal to start a fund that guarantees 5% annual return on peoples money? No risk unless this company goes bankrupt.
The idea being, take the clients money, stick it in stock indexes and a few other methods to get a long term return of 7-12% a year over a 30 year period. You act like a bank, keeping a reserve requirement to pay off people who need their money now. In crisis times like when the market crashes 10% or 50%, you have a contract with customers who agree to not withdraw money until a certain time later or face a penalty. (Some sort of rule to prevent bank runs)
This allows for the company fund to fluctuate but get 7-12% return over the long period, investors get a constant 5% guaranteed. Perhaps people poor money into this fund when the market decreases, and take it out in an up market, which would further benefit returns. Any thoughts?
