When Jay Schabacker was 39 years old, he chucked his career as an aerospace engineer and enrolled at George Washington University to pursue a master's degree in business administration.

Fascinated since youth by the workings of the stock market, Schabacker wrote his thesis on "market timing," the not-so-exact science of trying to predict when the market is moving up and when it is headed down.

After four years of going to school at night and working at a Reston electronics firm during the day, Schabacker got his MBA. He was then 43.

While studying the movements of the stock market, he organized a set of 14 statistics into an indicator he believed would project the direction of the market and when to buy and sell stocks.

Believing he could apply his market "forecaster" to no-load mutual funds -- which charge no commissions -- Schabacker began to write a newsletter called Switch Fund Advisory. His theory was that an investor could do better than the market averages by using a two-step approach: First, by putting money into growth funds, which invest in a diversified group of stocks, and second, by being prepared to switch investments from a growth fund to a money market fund when it appeared the stock market was headed south.

The switching is possible because of the willingness of many funds, especially the no-load funds, to allow investors to move their investments by merely making a phone call.

In Switch Fund Advisory, Schabacker told his subscribers where he thought the market was going; the funds he thought were good buys, and what percentage of their money should be in stock funds and in money market funds. So far, major switch signals have been few and far between.

It has been seven years since Schabacker began writing Switch Fund Advisory on his kitchen table. Since then, his one newsletter has become four; he has added the Retirement Fund Advisory, the Weekly Advisory Bulletin and, recently, Mutual Fund Investing, published by Phillips Publishing Co.

Schabacker's operation, which has a staff of 11, is housed in four town-house offices in a Gaithersburg office park. It brings in $1 million a year, including his fees for managing 212 accounts totaling $25 million. His minimum account is $100,000, for which he charges a 2 percent fee that declines as the investment grows larger.

Managing money, especially large amounts of it, is an experience that Schabacker describes as "humbling." It also has made him quite conservative: His motto is "Better safe than sorry." Simply put, when Schabacker's "forecaster" sees uncertainty in the market, Schabacker advises clients to keep 50 percent of their investments in equities and 50 percent in cash funds. That, in fact, is his present posture. It helps his clients sleep better at night, he says.

But Schabacker wasn't always quite so cautious, it seems.

"There used to be a time when I was pretty aggressive in the stock market as a youngster," he recalls with some glee. "I made a bunch of money and lost a little money. . . . When I started taking on managed accounts of my own with common stocks, I said to myself, 'This foolishness of speculating has got to come to an end.' And I got conservative. . . . I like to sleep at night, too."

Although Schabacker's market "forecaster" has produced mixed results, Schabacker showed perfect timing by leaping into the mutual fund advisory business when he did.

Ten years ago, before money market and bond funds were in vogue, the assets of mutual funds totaled $42.2 billion. Today, there are 1,246 funds of all types and their assets total $397.5 billon. Individual Retirement Accounts (IRAs) have brought in 6 million accounts and $16 billion in assets.

The mutual fund industry, for its part, has displayed continuing ingenuity in inventing new funds. Sector, or industry-oriented funds are among the hottest current performers. Schabacker, at the moment, has distributed the investments in his $100,000 model portfolio this way:

* Growth with current income: Vanguard Windsor (which recently closed) and Mutual Shares -- 20 percent.

* Long-term growth: Scudder International and Strong Investment -- 18 percent.

* Income stocks and/or bonds: Fidelity Equity Income -- 10 percent.

Gold: United Services Gold Shares -- 5 percent.

* Money Market: Fidelity Cash Reserves, Fidelity Select Cash Reserves and Vanguard Money Market-Prime -- 47 percent.

How well have Schabacker's managed accounts fared? That depends on what period you examine. Six years of results look better than five years, five years look better than four years, and so forth. His averages have suffered because of small gains in 1983 and a losing year in 1984 -- when many other funds lost, too.

Over eight years (1977-1984), he managed a compound annual return of 16.2 percent. Over six years (1979-1984), the return was 19.7 percent, while the five-year (1980-1984) return was 16.80 percent and the four-year (1981-1984) return was 11.82 percent. Over three years (1982-1984) the return was 13.9 percent, while for the last two years (1983-1984), the return was 6.53 percent. Last year, the fund had a loss of 0.05 percent.

Schabacker handily beat either the Dow Jones industrial average or the Standard & Poor's 500, except from 1982-84. His explanation is that many high-tech stocks fell sharply in 1983-84, hurting the performance of key growth funds.

Schabacker is not without competition. The same surge of interest in mutual funds that fueled the growth of his newsletters inspired others to jump into the switching field. Some of the newcomers may be responding to the swashbuckling claim of Californian Dick Fabian, publisher of Telephone Switch Newsletter, who declared: "I'm making so much money, it's sinful."

No one can quite agree on how many newsletters are in the mutual fund -- telephone switch field. Schabacker, who gets $135 per annual subscription to Switch Fund Advisory, said he thinks he has only a handful of real competitors -- perhaps seven or eight. Fabian, whose letter goes for $117 a year, said he believes there are 25 other newsletters trying to do what he does.

There are many reasons to believe that investors, especially those who are new at it, may benefit from the research help and advice newsletters provide. But investors should ask lots of questions before subscribing.

These include the price of the letter, how often it is published, what sort of investment territory it covers, whether the newsletter editor or publisher is registered with the federal Securities and Exchange Commission and whether the investor has enough money or wants to trade often enough to use the advice given. Of no small importance is whether the newsletter is so full of moving averages and jargon that it is over the investor's head.

Investors also need to ask a number of questions about mutual fund investing and telepone switching. These include how often you can switch within a family of funds, what problems are encountered when you try to move from one fund family to another, what delays are faced when the investor tries to move an IRA and what tax consequences are involved when you move your money.

Certainly, an investor should ask about whether funds have up-front commissions, back-end withdrawal charges, distribution (advertising) charges, and how much of a management fee is charged.

In investing, as in other areas of life, it is important to look before you buy. Jay Schabacker would agree with that.