Profits generated from the selling of an asset, such as financial investments, are known as capital gains. Capital gains can either be long-term or short-term, depending on how long you have owned the asset (over or under one year). Short-term and long-term gains primarily differ in the rate at which they are taxed. Short-term capital gains are taxed at the same rate as ordinary income, while long-term capital gains are taxed at special, lower rates.
Short-term investments are investments which can easily be converted to cash, normally within 5 years of acquisition. These investments are sometimes sold or converted into cash after only 3-12 months. Examples of short-term investments include CDs, money market accounts, high-yield savings accounts, government bonds and Treasury bills. These investments are typically high-quality and highly liquid assets or investment vehicles.
A long-term investment is an asset that a company plans on holding for more than a year. The long-term investment account differs from the short-term investment account in that short-term investments will most likely be sold after a short period of time, whereas long-term investments will not be sold for a long period of time or, in some cases, will never be sold.
Compound interest (or compounding interest) is interest on a loan or deposit that is calculated using the initial principal and the accumulated interest from previous periods. The accrual rate of the compound interest depends on the frequency of compounding. Compound interest increases as the number of compounding periods increases. Consequentially, compound interest accrued on $100 compounded at 10% annually will be lower than compound interest accrued on $100 compounded at 5% semi-annually over the same amount of time.