This presentation does not reflect that yearly change. The most striking result of this tabulation is the comparison of the Foolish Four Portfolio with the Rule Breaker Portfolio. Even though the Foolish Four has 4 stocks and the Rule Breaker portfolio has 12, the effective diversification for the Rule Breaker portfolio is a dismal 2.0. The Foolish Four portfolio, in contrast, has low volatility Dow stocks which actually increase the effective diversification of the portfolio. This table also illustrates the effect of diversification on safe withdrawal rates.
Diversification is important for a retiree making annual withdrawals from a portfolio.
If you decide to maintain a concentrated portfolio in retirement, reduce your annual withdrawal. If you can't survive on the lower withdrawal rate, then you need to diversify. However, this doesn't mean you should automatically sell all your winners and buy an index fund when you retire. You will need pkunzip.exe to expand the file once you download it. The instructions for performing and interpreting the diversification calculation appear in the upper left hand corner of the spreadsheet.