when a firm purchases shares of stock or another company s debt as investments determining whether to classify it as short term or long term affects the way those assets are valued on the balance sheet 
short term investments are marked to market and any declines in their value are recognized as a loss however increases in value are not recognized until the item is sold this means that classifying an investment as long or short term has a direct impact on the reported net income of the company holding the investment analysts look for changes in long term assets as a sign that a company may be liquidating to cover current expenses generally a problem if it continues long term investing for individualsfor many individuals saving and investing for retirement represents their main long term project while it is true that there are other expenses that require a multi year effort such as buying a car or buying and paying off a house retirement is the main reason most people have a portfolio in this case we are encouraged to start early and invest often real estate is often considered to be a long term investment individuals that buy a house usually sell it many years after they have bought it or they own it until the mortgage is fully paid off profitable securities sold after a year are subject to capital gains tax as opposed to ordinary income tax for securities sold under a year 1stocks mutual funds and exchange traded funds etfs can either be long term or short term investments depending on how long they are held for 3 an individual can buy a stock and sell it if it appreciates in a few weeks or months conversely the same stock can be held for years and sold until it has appreciated even more using both a long term outlook and the power of compounding individual investors can use the years they have between themselves and retirement to take prudent risks when your time horizon is measured in decades market downturns and other risks can be taken for the long term rewards of a higher overall return 