Reliability vs. Curve Fitting

While this becomes a complex professional topic, suffice it to say that if a quoted performance record is too good to be true it probably is. Curve-fit systems, while showing quite enticing and alluring return numbers, usually flat fail the test of real time application. The curve-fit systems fail when the market conditions marginally change from the highly optimized market conditions upon which they were originally designed.

TSP Pilot systems were optimized using advanced "walk forward" and "double blind" parametric optimization and testing procedures to assure reliability over the long term.

While one single system may have produced the best past trading history for one specific TSP fund (i.e., System S-2 for the S Fund), that superior performance may not continue its superiority over the other systems and funds in the future. Putting "all your eggs in one system basket" is precisely the wrong strategy to follow.

No matter how logical the system is, or how thoroughly the system has been researched and tested over years of back data, the continued superior performance of that one single chosen system simply can not be counted on to out perform other systems and funds in the future. Just as an investor needs to diversify his contributions over the range of the Thrift Savings Plan funds it is equally important to diversify the systems that market time those funds.

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