One of the key things you’ll typically hear from stock market experts is that it pays to start investing in shares as early as possible.

Of course, when you have limited funds, this may be easier said than done. However, investing is all about taking a long-term approach — you want to be in the markets for decades not days, because this game is one won by compounding growth. Just look at Warren Buffet’s wealth over the years:

Even a small sum set aside for investing in shares can potentially snowball into a sizeable portfolio across one’s lifetime. That’s without necessarily finding the next CSL (ASX: CSL) or CBA (ASX: CBA), which would only increase your returns exponentially.

When buying a security you don’t already hold, the ASX prohibits trades that would result in a holding valued <$500. What does that mean? The minimum trade value when buying a security for the first time is $500, excluding brokerage. If you already hold the security in your portfolio, there is no minimum trade size. 

Here are three ways you can start investing in shares with just $500, plus brokerage.

You Can Invest in Dividend-paying ASX shares

The ASX is home to a long list of stocks. Although no stock is risk-free, companies with an established record of delivering profits and paying dividends are typically less volatile.

Buying shares in a company means that you are effectively a part-owner. This may prompt you to focus on finding stocks that offer long-term upside.

Furthermore, if you are confident in a company’s future earnings and dividend outlook, you might elect to participate in the company’s dividend reinvestment plan. Over the long-term, even an investment as little as $500 can lead to a large returns.

Read here to learn about franking credits

You Can Invest in ETFs

While it might be tempting to ‘take a punt’ and put a small amount of money into a single stock with potential for quick returns, this is highly risky. If you want to build a share portfolio from scratch, it’s best to avoid single-stocks investments until you’re familiar. (When you are, start by investing in more stable stocks with a long-term outlook.) 

With this in mind, you may want to look at exchange traded funds. ETFs allow you to gain exposure to a basket of shares. That means you can effectively invest in a large number of companies with just $500, plus brokerage. 

Just like you would with individual stock purchases, ETFs can be bought through your trading account. Fees are typically lower than those of managed funds, meaning they won’t eat into your potential gains.

ETFs can provide exposure to international stocks. This includes the US stock market, as well as other regions like Japan, Hong Kong, Europe, and more. You can use ETFs to invest in specific sectors like technology and commodities like energy and precious metals.

When investing in an ETF, you should always read the PDS (Product Disclosure Statement). This will give you valuable insight into whether the ETF is right for you.

You Can Invest in LICs

LICs, or listed-investment companies, are publicly-traded companies that actively invest across various asset classes. This may mostly comprise shares, but can also include bonds, property, commodities, private businesses, and more. 

Investing in an LIC means you are buying shares in that company. You are not buying the underlying assets or any units that track an index like you would with ETFs. Demand for shares in the LIC will influence the share price of the LIC. Many LICs offer dividends, but they’re not required to. You should always check this before purchasing.

The fees associated with managing an LIC, including its performance, are typically higher than ETFs. However, LICs offer diversification across asset classes via one trading instrument. The expertise of the professionals who run LICs is also something that may be appealing to investors who are looking to start investing in shares with $500, plus brokerage.

 Regardless of Which You Choose, You Should Take a Long-Term Approach

A larger initial investment means you will reduce your brokerage costs rather than paying brokerage on each trade. Naturally, this means you need to set aside a portion of your savings each month towards investing in shares. If you can’t do this, you might want to research which shares you’d like to buy in the meantime.

However, if you want to start investing in shares straight away, you can do so with as little as $500, plus brokerage. You might even want to consider whether dollar cost averaging works for you. Whether it’s dividend-paying ASX shares, ETFs, or LICs, there are several options that can help you begin plotting long-term returns. 

The key takeaway is that even with a small amount of money, investing early is a savvy strategy. You can still harness the benefits of compounding growth over the long-run, especially if you invest regularly and reinvest your dividend proceeds.