What are long-term investments?

Long-term investments are defined as stocks and bonds of other companies that are intended to be held for a period exceeding one year. This classification of investments reflects the intention of the investor to maintain ownership and achieve potential gains over a longer time horizon rather than seeking immediate liquidity. Holding investments for more than one year typically indicates a strategy focused on capital appreciation or long-term income generation, such as dividends or interest.

In contrast, investments anticipated to be sold within 12 months are categorized as current assets, which primarily emphasize liquidity and short-term returns. The distinction is crucial in accounting as it affects how assets are reported on balance sheets. Furthermore, accounts receivable that are due within a year are also classified under current assets but do not represent investments in other entities like stocks or bonds.

By recognizing what constitutes long-term investments, it becomes clear how they fit into the broader spectrum of financial strategy, emphasizing the role they play in a diversified investment portfolio aimed at sustained growth.