Textbook Problem

How do long-term investments differ from short-term investments?

To determine

The difference between Long term and Short term investments.

Explanation of Solution

Long term investments are the investments that a company usually intends to hold for more than 1 year whereas Short term investments are defined as investments that an investor is expected to hold for 1years or less, then they can sell or covert those investments into cash.

Examples of Short term investments are Money market funds, short term bonds, certificates of deposits etc.

Long term investments are shown on the asset side of the company’s balance sheet that represents the investments of the company they include: Bonds, stocks, cash, real estate etc.

Long term investments are easier and safe to plan.

Basis	Long term investments	Short term investments
Definition	the investments that a company usually intends to hold for more than 1 year	investments that an investor is expected to hold for 1years or less, then they can sell or covert those investments into cash
Example	Bonds, stocks, cash, real estate	Money market funds, short term bonds, certificates of deposits etc.
Expectations	They expect a good amount of return	Do not expect much return
Goals	Long term goals like building resources to help pay for a comfortable retirement.	Short term goals like purchase of a car or funds for a vacation.
Risks	Risk associated is volatility, fluctuations in the financial market.	Risk associated is Purchasing power risk- risk that the investment’s return will not keep up with the inflation.